02/06/2013

Exploring the Strategic Market Value of ESG Information

Environmental, Social and Governance (ESG) performance is increasingly used to pinpoint winning stocks, and there is growing interest from mainstream investors in whether companies are managing ESG issues. This gives many companies compelling reason to believe that investors are paying more attention to ESG reporting, yet how companies approach ESG disclosure still varies widely.  The question becomes—what kind of information are investors seeking?  Our view is that the need goes far beyond merely enhancing communication about ESG branding and performance.  It includes identifying issues that are material to investors, such as risk management strategies.

 ESG issues—particularly in a turbulent economic environment—represent a growing class of financially material risks.  Labor disputes in emerging markets, large scale accidents, governance failures, violations of environmental laws—all of these and more are the types of “shocks” to the corporate system that can dictate whether a company lives or dies, prospers or gets acquired.  Why?  Because investor perception of a company’s preparedness to deal with the unexpected—and resilience in the face of difficult challenges—affects investment interest and decision making.  And ESG risks are hard to predict and may have a significant impact on companies and the stakeholders (employees, customers, suppliers) they depend on to remain profitable.

By most measures, the mere adoption of strong ESG practices has minimal impact on a company’s stock value. However, a positive ESG reputation can add a layer of stock price protection that we call the “ESG halo.”  Companies that demonstrate they are prepared for ESG shocks may be in a better position to mitigate these downside risks. ESG disclosure, therefore, can add value, because it helps the company demonstrate that it can manage risks and has the forethought to track ESG performance effectively.

Disclosure on how companies manage their ESG risks is critical, because it can help capture investor interest and establish the long-term value of ESG management.  In short, the value of how ESG has been managed is clearest after a crisis has hit.  Whether an incident is small and short-term or large-scale and catastrophic, it may not be so much direct losses from the event that erode investor trust as it is loss of confidence in management’s ability to anticipate problems and deal with a situation’s aftermath.

Transparency builds credibility in the marketplace and in the mind of the investor.  This is why we strongly recommend a disclosure narrative that goes far beyond the data and focuses not only on traditional ESG metrics but also on openly discussing potential ESG risks that your company faces—what they are, where they might originate, and what they mean to the company.  Many ESG risks are the unintended consequences, or impacts, of various activities your company undertakes or is associated with. Then you talk about what you are doing to own and manage the risks—both within the company and in the broader context of your industry and a worldview.

Investors are indeed paying attention, because they believe your company’s ESG performance matters to your stakeholders and that it is essential to manage your exposure to ESG risks. In the end, it is the underlying actions you take to craft and maintain your ESG halo that helps you to create value moving forward.

To learn more, read the article in the latest issue of Deloitte Review.


Eric Hespenheide
Partner
Deloitte & Touche LLP

Dinah A. Koehler
Senior Research Manager
Deloitte Services LP



As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries.  Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.  Certain services may not be available to attest clients under the rules and regulations of public accounting.

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

Copyright © 2013 Deloitte Development LLC. All rights reserved

01/23/2013

Collaboration with Suppliers to Reduce Risk and Help Drive Value

The following blog post is taken from David Linich's Deloitte Consulting LLP article from Supply Chain Digest, Labor Unrest in the Global Supply Chain – Major Risk or Untapped Opportunity?

..........

Labor riots.  Tragic fires in factories.  Droughts drying up rivers and closing major transport routes. Hurricanes shutting down operations and causing billions in damages and lost business.  Water becoming an increasingly scarce resource.  Energy prices increasing and becoming more volatile.  Bribery scandals.

The risks facing supply chain executives are mounting.  What can  be done to get ahead of these issues?  Leading companies have prepared themselves by understanding where they are vulnerable, and by recognizing the untapped opportunity that exists with improved visibility and collaboration with suppliers.

Improving transparency

Today's complex global supply chains require a higher degree of analysis and transparency than ever before. For starters, companies should set clear expectations for how suppliers operate and pop the hood on their operations to understand what’s really going on.


A code of conduct sets the standard for how suppliers operate. But for many companies, it may not be worth the paper it’s written on.  Proper training is important so suppliers understand the code and are able to deliver against expectations.

Once the code of conduct is in place, attention should shift to evaluation of performance. And it should not just be on direct suppliers, but rather, multiple tiers upstream.  If a problem occurs anywhere in the supply chain, downstream parties can be impacted. And thanks to social media, there's a good chance the public and the media will find out about the problem first.

Evaluating supplier performance should draw upon advanced analytical tools to ease the administrative burden and improve the insights delivered.  Evaluation should include both regular “point in time” analyses and real time monitoring of potential risk events.  Time and resources are limited, and it’s not feasible to monitor suppliers equally.  Fortunately, not all suppliers and product/material categories carry the same level of risk, and doing some preliminary analysis based on a host of criteria such as criticality of the supplier, level of spend, and location can help companies take a thoughtful approach to allocating their time differently based on the potential risk of suppliers.

For suppliers that pose a higher potential risk, companies should take a more active approach to the “point in time” evaluation.  These evaluations may include targeted surveys coupled with onsite audits.  For lower potential risk suppliers, it might be sufficient to evaluate a sample set each year through a questionnaire.

Value from collaboration

Engaging with suppliers can be an effective way to identify and help mitigate supply chain risk. But that's just one reason to do it. Even more important, it can help companies identify and capitalize on a wide range of cost reduction and revenue growth opportunities.

Mapping and analysis exercises such as lifecycle assessment (LCA) can uncover simple changes that yield timely benefits. For example, a leading beverage company performed an LCA and found opportunities to reduce its annual carbon emissions by 82,000 tons and save more than $40 million per year by making its shipping containers from durable, reusable plastic instead of fragile corrugated cardboard.

In other cases, tapping into opportunities requires active collaboration with certain suppliers. Although this may involve a bit more work, the results are often very worthwhile. In fact, a recent survey of roughly 1,000 supply chain executives found that organizations that engaged with suppliers at any tier were 38 percent more likely to achieve or surpass their expectations and have their initiatives result in cost reductions[1].

Plus, teaming with suppliers to design new products and processes may lead to radical innovations. For example, a motor oil producer collaborated with a packaging supplier to develop an innovative 6 gallon bag-in-box container which replaces 24 plastic bottles on motor oil. This innovation resulted in 89 percent less plastic landfill waste and improved transportation and storage space utilization by 50%.  Such innovations can boost financial performance and get certain stakeholders (including employees, business partners, investors, and customers) excited about the company.

Effective collaboration requires trust and clear benefits for both parties. That's why it's important to design methods for sharing any monetary gains with suppliers. This can give them a tangible incentive for collaboration and implementation.

 Turning risk into opportunity

In modern business, a good portion of the work is often done by a company’s extended supply chain -- and is closely scrutinized by an increasingly connected world. Although this may create significant risks, it can also create new opportunities for improving  aspects of business performance. By working more closely with supply chain partners, companies can reduce the chances of supply disruption and help protect their reputation. But perhaps even more important, they can develop new innovations that  reduce operating costs, boost revenue, and make their business more sustainable and resilient.

Join us for our next sustainability webcast, Supplier Collaboration: Pracitical Steps to Help Drive Financial Value and Resiliency on February 4th at 2:00 PM ET.



David Linich
Principal
Deloitte Consulting LLP



[1] 2012 survey by Deloitte Consulting LLP, in conjunction with ASQ, Institute for Supply Management, and Corporate Responsibility Officer Association

As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

Copyright © 2013 Deloitte Development LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

01/09/2013

Sustainability Reporting

In the absence of any broad legislative or regulatory mandate for comprehensive sustainability reporting by U.S. companies, market forces continue to drive increased disclosure and transparency around how a company is identifying and managing risks related to environmental, social or governance (ESG) concerns. Companies are not only responding to an increasing number of ESG disclosure requests through initiatives like the Carbon Disclosure Project (CDP), the Dow Jones Sustainability Index (DJSI) and other notable sustainability disclosure and performance initiatives, but they are recognizing the business value to proactively creating a positive ESG reputation through increased transparency.

In their June 2012 publication, “Drivers of long-term business value: stakeholders, stats, strategy”, Dinah Koehler and Eric Hespenheide discuss the concept of the ESG halo which refers to the extra layer of protection enjoyed by companies who proactively demonstrate they are prepared to react to and mitigate ESG risks.  Investors are increasingly looking to understand how a company is managing ESG risks, including a company’s preparation for market volatility and risk mitigation, as a key input into future value creation and greater certainty of investment return. Or said differently, investors are increasingly looking to identify companies that most effectively leverage this ESG halo to increase business value and investment returns in the long term.

So why is sustainability reporting still so confusing?  The commonly referred to “alphabet soup” of sustainability disclosure and reporting initiatives continues to contribute to this confusion.  Unlike financial reporting, there is no generally accepted set of sustainability disclosures across all companies and industries that provides for ease of comparability and performance interpretation.  The Global Reporting Initiative (GRI) is the most globally recognized sustainability reporting framework and one of the key steps that guides sustainability reporting in accordance with GRI is to identify the ESG topics that are relevant to the organization and prioritizing those topics that are “material” – this critical step is also very challenging for companies across all industries.  The concept of ESG materiality requires a company to determine which of the multiple dimensions of sustainability may have an impact on and may influence the economic decision making of the company’s stakeholders, and importantly align external disclosure expectations with the critical measurement and reporting practices that assist management in improving company performance.

The increasing number of sustainability disclosure and performance initiatives, in the form of the multiple sustainability raters or rankers, attempt to determine the issues that are most important or “material” as defined by a consistent assessment framework and weighting process. Yet even with the explosion of sustainability ratings organizations flooding the public markets, investors continue to struggle with interpretation of ESG performance given that companies approach ESG and report performance differently.  We explored the Global Initiative for Sustainability Ratings (GISR), an effort to create some standardization in the sustainability performance ratings space, along with the GRI, the Sustainability Accounting Standards Board (SASB) and other sustainability reporting initiatives during the January 8th Deloitte Dbriefs “Sustainability Reporting: What in the World is Going On?”.


Kristen Sullivan
Partner
Deloitte & Touche LLP 


As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries.  Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.  Certain services may not be available to attest clients under the rules and regulations of public accounting.

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

Copyright © 2013 Deloitte Development LLC. All rights reserved

11/28/2012

Sustainability and the CFO: Survey demonstrates key attitudes are in transition; officers are engaged

A recent study conducted for Deloitte Touche Tohmatsu Limited and its member firms by Verdantix underscores the fact that many leading organizations are rethinking sustainability as a potentially significant factor in their business—a factor that can have notable impact on both operations and financial outcomes.  In my opinion, it’s likely these are the same organizations that acknowledged sustainability as far more than “just a fad” some time ago.  Now, increasingly, they are seeing the connection between ROI and sustainability initiatives across the supply chain and within their own organizations.

The “2012 Sustainability and the CFO” survey was conducted globally for Deloitte Touche Tohmatsu Limited and its member firms by Verdantix, an independent firm of business analysts.  In all, 250 CFOs—representing companies with an average of $12 billion in revenue, across 15 industries in 14 countries—were surveyed.  The attitudes captured point up clearly and dramatically that sustainability has officially entered the c-suite, and that CFOs, in particular, are focused on the issue’s ability to create long-term value and competitive differentiation. In short, for quite a few of these 250 survey participants, sustainability is integral to how their businesses run.

I want to share several of the key survey findings to further illustrate these points:

  • 49% of respondents see sustainability as a key driver of financial performance.
  • 34% say they are in the process of implementing an organizational transformation relating to energy, environment, and/or sustainability—and another 22% plan to do so in the next two years.
  • And while 44% say that sustainability authority still rests mainly with their CEOs, the number of CFOs and COOs getting directly involved has grown significantly—from 17% of CFOs last year to 26% in 2012; and from 3% of COOs in 2011 to 10% this year.  In other words, sustainability authority is transitioning from “face of the brand” officers into the hands of those empowered with operating authority and the budgets to implement sustainability strategies.
  • 66% report that CFO involvement with sustainability is deepening, meaning they are either always or frequently involved in driving execution of programs in their organizations.
  • And one other result of special interest is that 39% of CFOs now believe it is “very important” to communicate about sustainability to empoyees—a 16% increase in this response over 2011.

What does all of this mean?  I believe it describes an attitude about sustainability value that has been transformed by business realities: data accessibility and analytics have improved along with the emergence of important resource management issues (e.g., water scarcity and energy management).  So more and more business leaders are learning about how they can work with suppliers and other stakeholders to be more efficient and cost-effective, while also helping to mitigate resource and production risks, and explore innovative ways of doing things that might further contribute to future success.  I believe that these survey results demonstrate that sustainability is a friend of—not a threat to—companies that intend to lead us into the future, and I’m excited about working with those corporate leaders to do just that!


David Pearson
Chief Sustainability Officer and Global Managing Director, Sustainability
Deloitte Touche Tohmatsu Limited




As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.


This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

Copyright © 2012 Deloitte Development LLC. All rights reserved

11/15/2012

Sustainability: A major factor impacting future state and local government growth

Our firm has worked with the vast majority of the U.S. states and hundreds of local governments over the past 50 years in their efforts to implement innovative solutions to some of their greatest challenges.  These challenges, of course, change over time, but it’s difficult to imagine that there has ever been a more challenging time than now for the public sector, especially for jurisdictions experiencing extreme weather events, extraordinary demographic shifts,  declining tax revenues, and loss of manufacturing and other industry jobs.

Nevertheless, we have noticed a ray of special hope for a number of states and localities that have begun to embrace opportunities inherent in adopting progressive sustainability initiatives. Where weather and environmental changes have formerly resulted in loss, many are now focusing on proactively countering these threats through positive actions aimed at providing the regulatory conditions and natural resource “tools” needed to attract new business development.

An important question for these jurisdictions is “how can we grow again?”  And the answer, for a growing number, is by finding ways to promote increasingly critical goals, such as lower energy costs and plentiful access to water.  This is not about environmentalism, though there are benefits in that area, too; it’s about finding new ways to bring in the economic development that is so essential to stimulating growth—attracting businesses that employ people, who in turn buy property, pay taxes, and consume local goods.

It starts with recognizing sustainability as a core business strategy in addition to being a component of good corporate citizenship.  As more and more businesses focus on natural resource use and preservation as an integral part of their fundamental business strategy, they are looking for places to locate that can enhance their chances of adding revenue streams, improving profit margins, and bolstering brand value.  At the end of the day, these organizations are not only driving innovation for their enterprises, they are also changing the communities in which they operate.

Five resources are consistent ingredients in virtually all organizational supply chains—energy, carbon, water, materials, and waste, so the potential to boost efficiency and cut costs in the use of these resources is significant.  Reducing usage and waste and improving access to these resources can be a powerful driver for a company’s operating model and a great way to lower specific resource costs.  State and local initiatives aimed at assisting energy supplies or improving energy efficiency, for example, are attractive to business leaders and will likely become only more so as energy prices continue to rise.  Similarly, accessibility to water, believed to one of our most plentiful resources, is becoming more limited and leading to a rethink on factory locations and manufacturing processes.  Addressing new rules for water rights and availability now is a step ahead of the game.

Public sector entities that enact policies, legislation, and programs to help companies in these areas will likely reap their own growth and prosperity rewards over the coming decade for having been on the cutting edge of a much bigger role for sustainability in business strategy and growth.


Jessica Blume
Principal
Deloitte Consulting LLP



As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

Copyright © 2012 Deloitte Development LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

11/01/2012

2012 Stockholm World Water Week

Stockholm World Water Week is one of the global events focused on water related issues of the private and public sectors. The event has been convened since 1991 by the Stockholm International Water Institute (SIWI). This year the theme was on “Water and Food Security” and was held from August 27th through the 31st (http://www.worldwaterweek.org/).

Deloitte was actively engaged in the event this year with the following presentations:

  • CEO Water Mandate Water Action Hub – presentation of the results of our pro bono work with the CEO Water Mandate (and the Pacific Institute) and International Business Leaders Forum (IBLF) in developing an online tool to promote collaboration among stakeholders on water related issues (http://wateractionhub.org/).
  • “Water Efficiency on the Food Supply Chain in Latin America and Caribbean Region”
  • “Creating Shared Value - Testing a Model of Corporate Value Creation through a Water Lens to Address Water and Agriculture”

A few themes emerged from Stockholm World Water Week this year demonstrating the urgent need to address water scarcity and food security.  And, fortunately, there was a feeling of progress on a few specific issues.

One was the need for “collective action” and the other was collaboration between food and beverage companies and their agricultural supply chain. Both of these issues reflect the reality that water is a shared resource and common good and solutions to address water scarcity requires collaboration among stakeholders.

This year the CEO Water Mandate released a document on “Guide to Water-Related Collective Action” and the release of the Water Action Hub. These two complementary releases are intended to facilitate collaboration among stakeholders to address water scarcity and clearly highlight that water is a shared resource among stakeholders – we “borrow” water for a period of time and must be a steward of this finite resource. The CEO Mandate Collective Action guidelines lay out a process for engaging with stakeholders and collaborating with them on a wide range of initiatives from water efficiency, conservation and public policy initiatives.

The Water Action Hub is designed to address a critical question in collective action, how can you systematically and efficiency identify stakeholders within a watershed interested in collaboration? The Water Action Hub is an online tool designed to readily identify and connect stakeholders interested in working together to address critical water issues.


The second theme is how multinational food and beverage companies are working together with their agricultural supply chains to address water scarcity and food security. This direct engagement with agricultural supply chains is “disruptive” in a positive way. Now global food and beverage companies are working with the agricultural sector to address water scarcity and food security.

Our involvement in this event has contributed to our eminence in addressing global water issues and connects us with our clients on this important issue. Important connections were made with current clients and new relationships were established.

Will Sarni
Director
Deloitte Consulting LLP
 

As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

10/17/2012

The Sustainability - Innovation Connection

It’s hard to be a top innovator.  In fact, of the many companies considered for popular lists of the “most innovative company,”  fewer than 4% are chosen.  However, our recent research demonstrates that being a sustainability leader can significantly raise your company’s chances of being a top innovator.

Drawing on a number of lists ranking both sustainability and innovation leaders, we analyzed the relationship between the two and came to the following conclusion: sustainability drives innovation, and it does so in a big way.  When we averaged across multiple lists (to confirm the consistency of the the results), the outcome was the same - sustainability leaders are more than 400% more likely to be considered innovation leaders.

To substantiate these results, we looked at two common (and legimate) questions:

  • How do we know the results were causation, not just correlation?
  • How do we know that sustainability leads to innovation, not the other way around?

To address the first question, we considered what we would likely see if something else were causing both sustainability and innovation to be correlated. (The most common suggestion for the “something else” was highly effective corporate management, but there are other possibilities as well.) Then we considered how the scenario would differ if sustainability leadership was directly causing innovation leadership.

Based on our analysis, if sustainability leadership were causing the increase in innovation leadership, we would likely see a longitudinal effect – that is, the likelihood of innovation leadership should change over time. This is because a sustainability leader’s use of sustainability as a lens tends to/has been shown to create innovative ideas, some of which take time to become visible from the outside.

Based on these assumptions/findings, a company should see part of the innovation effect from sustainability in the same year that it becomes a sustainability leader and part of it in the following year. As a result, if a company were a sustainability leader in, say, 2009, we should expect to see an increase in the likelihood of innovation leadership in 2009 and a further increase in 2010, as more of the innovative ideas caused by sustainability come to fruition.

This is different from what we would expect if something else, such as effective/highly effective management, were causing both sustainability and innovation leadership. In that case, sustainability leadership and innovation leadership should move together over time, as whatever causes them both (e.g., effective management) changes.

For example, if a company were a sustainability leader in, say, 2009, we would expect to see that the innovation leadership benefit would be about the same in 2009 and 2010. This means that if a sustainability leader in 2009 were 400% more likely to be an innovation leader that same year, we would not expect that to increase in 2010. (To take the example of effective management, we would expect that to be relatively consistent from year to year, because the same management team is in place or because a tested succession plan has left the organization with a strong management team.)

What this means is that the two competing hypotheses – sustainability leadership causes the increase in innovation leadership, versus sustainability is not the cause – indicate very different things, which means looking at the longitudinal data can enable us to tell which hypothesis is supported by the data and which is not. When we compare the longitudinal data, we find that, as the chart below shows, there is a very significant further increase in innovation leadership the year after sustainability leadership. (To use our examples above, a 2009 sustainability leader is 400% more likely to be an innovation leader in 2009 and 600% more likely to be one in 2010.)

This is exactly what we would expect if the hypothesis that sustainability leadership causes the increase in innovation leadership were true. But it is not at all what we would expect if the hypothesis that they are correlated but not causally related were true.

Another possible alternative explanation for the results (other than sustainability leadership causing innovation leadership) is that the causality is in fact the reverse – innovation leadership causes sustainability leadership. To test this hypothesis, we looked for two things:

  • Is the relationship between innovation and sustainability stronger (or less strong) than the relationship between sustainability and innovation?
  • Does innovation show the same longitudinal relationship with sustainability that sustainability does with innovation?

As seen in the chart below, the answer to both questions is no. The sustainability-innovation relationship does go both ways (which makes sense, as an innovative company may be more open to more sustainable technology and ideas), but the connection from sustainability to innovation is much stronger. In addition, the connection from innovation to sustainability does not show the longitudinal increase that the connection from sustainability to innovation does.

This means that the evidence supports the idea that sustainability leadership causes innovation leadership and does not support either of the alternative hypotheses: that they are correlated but not causually related or that the causation is from innovation to sustainability.

Picture1
"The Sustainability-Innovation Connection: Making it work", Deloitte Dbriefs Sustainability series, May 1, 2012.


Why Sustainability Drives Innovation

Why are we seeing such a strong link from sustainability to innovation? We believe that sustainability can provide a different “lens” for thinking: it helps companies to think differently, either thinking about different subjects (e.g., emissions) or thinking differently about existing subjects (e.g., thinking about supply chain from the perspective of making suppliers more sustainable).  Thinking differently can unlock companies’ innovative potential—they may see situations differently, they may reexamine their perspective of what’s important, and they can tap into new ideas.


Making It Happen

The next step is turning these new ways of thinking into concrete improvements in innovative output – improved focus, ideas and decisions about which ones to pursue. At Deloitte, we have a tested methodology for injecting sustainability into clients’ existing innovation processes: from the early steps of deciding what to focus on (where sustainability can bring to light new possibilities) to generating ideas (where sustainability-specific techniques can lead to ideas that may otherwise not have been developed) to the final ranking and execution process (where sustainability can help identify risks and growth potential that could otherwise have gone unnoticed). But whether you use our process or not – even if you don’t have a formal innovation process at all – just the act of including sustainability in your thinking can create real value. 


Sustainability and innovation can be essential to companies that want to continue to grow and thrive and now that we can address them both together – to help generate better/improved results – how will you start?


Daniel Aronson
Director
Deloitte Consulting LLP



As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. 

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

Copyright © 2012 Deloitte Development LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

10/03/2012

Adaptation Planning: Catalyst for action in an increasingly uncertain world

The quick-strike, “derecho” storm that ransacked the Washington, D.C. Metro area in June and the sustained droughts suffered in the U.S. and India over the past year, thankfully, do not fit into any “typical” metereological patterns.  That’s why we call them “extreme weather events,” and that’s why their unpredictability inspires such deep concern, drawing into focus how vulnerable we truly are, despite our ability to control so much else in our environment. 

Individuals impacted by these events readily recognize their power to devastate—just ask a farmer in the Midwest about the effect of drought on his ability to feed cattle or raise soybeans, or speak to one of the two million residents of Washington Metro who suffered massive, domino-effect outages about what it meant to go days without power, cell service, or gasoline.  Increasingly, business decision makers are making the connection between these periods of uncertainty and their potential for financial implications and the impact it can have on bottom line results and growth. 

Government executives see that the ramifications of these events can have very long tentacles, impacting physical infrastructure, first responder budgets, and urban zoning and planning guidelines.  Industry is impacted too.  Consider, for example, the case of India’s guar bean, a key ingredient in hydraulic fracturing fluid—or fracking—used to open cracks in shale rock to produce natural gas.  Due to India’s severe drought, the guar crop is severely diminished, and panic buying (with higher prices to follow) is way up.  Similarly, we need look no farther than our our own drought-ravaged corn crops in the Midwest to foresee the consequences on food prices and ethanol production, putting additional financial stress on consumers. 

At Deloitte, we advocate a proactive, bottom-up approach to addressing uncertainty:  Identify your vulnerabilities up front and assign a monetary value to what it means to be prepared.  Our term is “adaptation planning,” meaning to consider business strategies based on understanding the facts about extreme weather events and developing a cost/benefit analysis that can help prepare for uncertainty. Areas we can address include: 

  • How extreme weather events can pose dynamic and long-term threats to businesses and government
  • Monetarily quantifying and assessing materiality of identified vulnerability
  • Challenging readiness and prioritizing actions
  • Promoting innovation that can reduce vulnerability and create new value opportunities

In fact, we believe that adaptation planning related to extreme weather should be on the list of strategic priorities for corporate boards and government agencies.  It can be a cutting-edge mechanism for releasing practical insights and impactful strategic options—for both government and industry—that can create value and opportunity.  Highly unlikely, or black swan, events, like the derecho storm can stimulate innovation that not only produce solutions aimed at limiting risk exposure, but which can also produce entirely new products and behaviors that impact future direction.

Whether aimed at value preservation or value creation, adaptation planning can be a powerful tool for facing a future likely to be affected by extreme weather events and marketplace impacts. 


Rebecca Ranich
Director
Deloitte Consulting LLP



As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

Copyright © 2012 Deloitte Development LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

09/19/2012

Materiality - A Link to Business Value

“Materiality is the holy grail”, according to one of our interviewees, as it pertains to what a company discloses about its sustainability performance.  Over the course of our research we had many conversations with corporates and investors, and one thing became quite clear: materiality of an environmental, social or governance (ESG) issue must be linked to business value. From our research we know that ESG issues can have an impact on the company’s tangible (bottom line) and intangible (e.g. reputation) value. Yet, when it comes to identifying which ESG issues are the most likely to have a valuation impact, few companies today can make the link effectively or convincingly. Finding an answer is as much an art as a science, and can be fraught with uncertainty and unknowns. According to the SEC’s SAB 99: A matter is “material” if there is a substantial likelihood that a reasonable person …relying upon the report would have been changed or influenced by the inclusion or correction of the item…financial management and the auditor must consider both "quantitative" and "qualitative" factors in assessing an item's materiality.[1]

The challenge faced by companies that disclose ESG information is that in many cases the valuation impact of ESG issues is not well understood. The common refrain is there are far too many stakeholders to consult and ESG topics to choose from. However, the rewards for doing this better may be significant by helping:

  • Attract investment into your company because the focus is on business relevant information
  • Direct how your company allocates capital and formulates its core business strategy
  • Build and strengthen your company’s reputation and value proposition
  • Address stakeholder concerns credibly

Sustainability managers can (and eventually must) make the life of the CFO easier by making this a conversation grounded in the company’s strategic objectives, competitive advantage, and opportunities for strategic investment to create long-term business value. The question is how to do this effectively, and in an engaging and quantitative manner.

We believe that tried and true methods in decision sciences, which have been applied to many complex decisions, are ideally suited to ESG materiality determination.  They offer a uniquely powerful, compelling and credible way to compare the relative importance of various ESG issues on a single scale based upon multi-stakeholder input.  Thus, while this inclusive approach can capture a broad information base, using decision science processes can ensure that only the most valuable information becomes the foundation for critical decisions on what needs to be measured, managed and disclosed.

Click here to read our latest report, Going from Good to Great: Ways to make your sustainability report business-critical.


Eric Hespenheide
Partner
Deloitte & Touche LLP

Dinah Koehler
Senior Research Manager
Deloitte Services LP



[1] See: http://www.sec.gov/interps/account/sab99.htm#foot3; See also: FASB, Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information ("Concepts Statement No. 2"), 132 (1980).


About Deloitte


Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2012 Deloitte Development LLC, All rights reserved.

08/08/2012

Effectively embracing the water-energy nexus – the role of collective action

Water has been such a plentiful and “taken for granted” natural resource that it is not surprising that growing demands on current supply are difficult for many to grasp.  Yet it is that overarching and incorrect assumption that water supplies are abundant—and virtually free—that makes water-related public policy such a hot topic.  The facts are these: water is a finite resource, it is becoming increasingly scarce, and the competition for it is heating up. 

Nearly everything we consume, wear, drive and manufacture uses water. As the implications for water availability and pricing rise to higher levels of public consciousness, many businesses are paying more attention to what this will mean for their strategies and value chain (supply chain, operations and in some cases product use).  Perhaps chief among these are energy companies.  Why?  Because energy and water need each other, and energy, like water, is tied to virtually everything governments and businesses highly value—including economic development and the public good. However, while governments and businesses have grown accustomed to competing for energy, few are familiar with what it will be like to compete for water.

We call this the water-energy nexus: the interrelationship between water and energy that is tied together (and also intimately tied to food production). Increased demands on water are impacting the world’s ability to meet its energy needs, while the need for more water for agricultural, industrial, and domestic uses requires more energy.  This nexus of supply and demand can pose substantial risks for governments and businesses.  So while many companies spend significant time and money developing strategies for talent, marketing, and technology, for example, few so far have an integrated energy-water strategy.  It could be a glaring omission—and a potentially dangerous one for the future of businesses.

Bridging the gap between energy supply and demand and the parallel strains on water resources, should be addressed by approaching the water-energy nexus from both sides of the equation.  And it is more than a pricing and cost issue.  It’s also about business continuity, brand value, and maintaining social license to operate.  We believe that what is needed is a water stewardship strategy that both mitigates risks and identifies opportunities beyond cost considerations.  It means safeguarding water and its use for stakeholders over the long term.  This may mean sharing water resources and taking other non-traditional approaches for collaboration.

In other words, an effective water stewardship strategy requires stakeholder engagement and collaboration – increasingly referred to as collective action.  As a resource of far-reaching implications, water simply has to be managed differently, and governments and businesses must come together to understand how to conserve it, use it, and share it.  Energy companies need to view energy development and power generation in the context of the local watershed.  Then stakeholders within the watershed should work together to track usage, understand the water footprint and associated risks, and create a collective water-energy conservation and management plan.

Unusual?  Yes.  But it may be a business model for an energy-water nexus win-win.



Will Sarni
Director
Deloitte Consulting LLP

 

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2012 Deloitte Development LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

07/25/2012

LCAs can add value by making important life cycle/supply chain connections

Many complex interactions take place between a product and the environment as it evolves from concept to marketplace reality.  The more companies fully understand each of those touch points and impacts, the better able they are to find ways to create added business value across the product’s end-to-end life cycle by supporting sustainability and other business objectives. 

In fact, Deloitte is helping clients in their efforts to take a more broad — and value-producing — view of resource use.  We do this by helping companies analyze opportunities to uncover value across the product life cycle, including every step of the supply chain.  This combination of life cycle and supply chain is important, because it includes collaborating and partnering with suppliers upstream and customers downstream to innovate new designs, explore the use of new materials, and/or tweak processes that can improve life cycle impacts and outputs. 

We call this exploration a Life Cycle Assessment (LCA), and we see it as an effective—and efficient—way to help provide new value, reduce costs, and improve brand identity.  From product sourcing, development, and manufacturing through marketing, distribution, use, and disposal, an LCA helps us see how resources are used, how waste is handled, and how each step in a product’s development and use come together to represent costs passed along to everyone involved. 

As sustainability surfaced as a specific issue for regulators, consumers, and investors, many companies began to look more closely at resource use in areas such as manufacturing and distribution.  But until recently, these explorations were mainly confined within the “four walls” of the organization, and didn’t extend to unlocking potential savings and overall value that might be trapped in other parts of the supply chain.   In short, many environmental studies are organization-centric and therefore fail to help business leaders connect the dots among each of the steps and players involved.

Far more than “footprinting,” an LCA study involves analyzing a wide variety of complex environmental metrics so that we can better understand both the qualitative and quantitative options and tradeoffs involved in each particular activity along the chain.  We then overlay a life cycle cost analysis to integrate economic considerations into the study.  As a result, we’ve seen LCAs effectively support the following business objectives:

  • Achieving additional cost savings
  • Enhancing competitive differentiation and brand value
  • Improving design decisions
  • Making better procurement decisions
  • Meeting stakeholder communications needs
  • Achieving compliance standards
  • Creating better internal environmental and sustainability policies

It starts with defining your organization’s objectives for the study and how they align with business goals, then creating a strategic road map for getting there.  We also encourage our clients to engage stakeholders, both internal and external, in developing the objectives and conducting the analysis.  Once the results are in, you can use the data to drive business decisions and investments that help you derive the anticipated extra value—and you can communicate widely about your efforts and benefits, which contributes to enhanced brand value.  In our experience, an LCA can be an effective and efficient exploration of product life cycle and supply chain activities that can pay big dividends in improved decision making and value creation.

To learn more about LCA, read our latest report here.


Sanjay Agarwal
Sustainability Leader, Operations and Supply Chain
Deloitte Consulting LLP 



As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. 

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

Copyright © 2012 Deloitte Development LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

07/10/2012

There’s Real Value in Sustainability: Tell the World!

Until recent years, “green” initiatives often were a peripheral activity for many businesses, pursued as part of an overall corporate responsibility campaign or in response to demands from part of its customer base.  Some did a particularly good job of publicizing their efforts—perhaps at times beyond the scope of their actual level of green activity—and there was concern that perception might matter more than actual performance.   However, the release last week of the 2012 “Best Global Green Brands” ranking, a joint project carried out by Deloitte LLP and Interbrand Corporation, suggests that there is a clear correlation between how a company performs in sustainability, how it reports on disclosure of that performance, and how its brand is perceived.

This  linkage between actual performance and market perception is an interesting finding—possibly even a breakthrough concept—in the 2012 list, because we have determined that when performance and perception are relatively aligned, the result can lead to improved shareholder value.

Interbrand and Deloitte began collaborating on a study of sustainability performance vis-a-vis perception nearly two years ago and produced the first “Best Global Green Brands” study in 2011.  Interbrand brought its significant track record in brand perception to the study and Deloitte brought its capabilities in assessing business performance.  These research findings offer a roadmap for companies that want to determine how well they are “living” their environmental commitment, which translates into a heightened public perception of their performance in an increasingly important area for consumers and the general public.

With the 2012 study, we now have two-year comparative data.  In this case, the data gives us a strong indication that companies move up and down in the ranking based on three main factors:

 

  1. Where they were on the list in 2011 vs. 2012
  2. How much their score changed from last year to this year (good or bad)
  3. The degree to which their disclosures were available for public evaluation

Moreover, we see a continued trend in three areas of disclosure—the quality of the data, frequency of reporting, and depth of information disclosed.  More, and frequent disclosure is proving to be a very good thing, and, inversely, failure to disclose sustainability information well and timely can negatively affect brand perception.

The 2012 study provides insights for companies to consider in shaping sustainability and reporting programs, particularly as they relate to enhancing brand value.  As the new study shows, there is real value in being sustainable—from driving product innovation to differentiating competitors to engaging consumers in new ways.  And “walking the talk” is an essential ingredient in filling the gap between customer perception and a brand’s actual green performance.

Chris Park
Principal
Deloitte Consulting LLP


As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

Copyright © 2012 Deloitte Development LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

06/26/2012

Deloitte and Interbrand release second annual study on Best Global Green Brands


Today, Deloitte and Interbrand  are pleased to announce release of their second, collaborative report on “Best Gobal Green Brands.”


This is an exciting time for Deloitte to do work in this area of growing impact among the world’s leading businesses.  What makes this particular project especially relevant for businesses involved in sustainability efforts is that our study focuses on both green brand performance and green brand perception.  Obviously, the two are not necessarily the same.  Marketplace expectations about what makes a brand “green” are rapidly changing as companies engage in sourcing, production, distribution, and marketing activities that express various forms of commitment to protecting the environment.  As those expectations evolve, many companies are looking for guidance about what’s most important—and brand relevant—to their specific activities and investments.   The inaugural “Best Global Green Brands” was released in July 2011.

In order to assist them, Deloitte combines its significant experience and capability in assessing business performance with Interbrand’s track record in brand perception.  Companies that make the list of leading global green brands have done substantial work aligning market perception with actual performance.  The methodology Deloitte developed to assess these measures is based on evidence provided in public disclosures and reporting, and the same process and tools can then be used to help companies who experience a gap between how the company is perceived on issues of sustainability and citizenship versus how they actually perform in those two areas. 

We believe that when performance and perception are relatively aligned, the result can translate into improved shareholder value.   Brand and reputation issues are among the top risk management concerns of leading companies, largely due to new social media channels  that enable immediate information sharing.  As a result, an event anywhere in the world can have a big effect on a company’s brand perception and value, even if the event is significantly upstream in the value chain.  If that impression is negative, it can be disproportionally harmful to shareholder value.  The goal for many companies is to get out in front of this reality by identifying areas of potential discrepancy or risk, and  is the first step in putting a plan in place to address risk and protect value. 

Deloitte’s methodology provides a way for companies to determinine how well they are “walking the walk” and “talking the talk” around their environmental commitment—and Interbrand’s ranking based on that methodology relates their performance to public perception.  For companies interested in aligning performance and perception, this is a big opportunity to create top- and bottom-line value and increase their connection to stakeholders who are concerned with sustainability performance.


Chris Park
Principal
Deloitte Consulting LLP

 

As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

Copyright © 2012 Deloitte Development LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

06/25/2012

Rio+20 demonstrates that we’re “headed in the right direction”

As more than a week of activities at the United Nations Conference on Sustainable Development (Rio+20) concluded yesterday, I think everyone who contributed thought leadership, put their and their organization’s support behind conference goals, and supported the sessions should be happy with where the conference ended: that is, happy that change is happening and that we are headed in the right direction, but not, in my opinion, content to think the work is done.

As you know from our messages over the past week, Rio+20 set out to help shape new policies to promote global prosperity, reduce poverty, and advance social equity and environmental protection.  Along those lines, those of us who participated in a related conference over the past several days—the Rio+20 Corporate Sustainability Forum (CSF)—had three specific goals in mind:

  • Set the stage for further growth for companies engaged in sustainable development
  • Demonstrate that many solutions for sustainable development already exist
  • Demonstrate concrete, tangible action on a massive scale

We concluded Monday night with most attendees having the impression that the CSF has largely achieved those goals and raised the bar on innovation and collaboration.  A document outlining priorities in several key areas— including water, finance, energy and climate, etc.—will be delivered to the Secretary General of the UN this week. 

Throughout the week, hundreds of commitments have been posted by companies on the United Nations website. Personally, I am impressed with what has been achieved, however, I think all the participants would agree that this is not enough. We need to take the message of "scaling" what has been discussed here to companies that intend to make sustainability a priority. We must share these ideas, so that others have confidence in their own ideas and approaches, and to share leading practices that can be adapted. At the end of the day, we believe that business must drive this change. Government can and should play a role and provide help and support, but, ultimately, business has to get it done.

I believe the contingent of Deloitte member firms at Rio+20 contributed quite effectively to the conferencey— from participating in side events to moderating panels and presenting positions that facilitated round table discussions. The Deloitte brand in this area is strong and well respected. This is a good base upon which to build as Deloitte member firms develop their business and support sustainable development for clients.


Dave Pearson
Director, Internal Sustainability
Deloitte Touche Tohmatsu Limited



About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2012 Deloitte Development LLC, All rights reserved.

06/22/2012

Ready Set Go! Rio+20 starts

And so it starts!  What an especially exciting time to be in Rio de Janeiro!  I am here for some of the numerous events being held over the next few days in conjunction with the 20th anniversary of the original Rio summit on the environment held here in 1993.  In fact, this week's much-anticipated event has been given the catchy name of "Rio+20," because of this milestone year.  The more formal name is the United Nations Global Compact Corporate Sustainability Forum and it kicks off this evening with an opening ceremony and reception.

Georg Kell, Executive Director of the UN Global Compact, the world's largest, voluntary corporate sustainability initiative, told me last night that there will be close to 5,000 participants here for the three days of meetings and networking.  With nearly 100 sessions--and given the high quality of the various presenters--it is going to be difficult to choose which ones to attend.  One, of course, will be an easy choice, because I have been asked to moderate a panel on "The Case for Corporate Sustainability Management and Reporting in Developing Markets."  I am pleased to say that I have five great co-panelists, including Ernst Ligteringen the Executive Director of the Global Reporting Initiative.

Right now, I'm headed out to the main conference site of an associated event, the UN Conference on Sustainable Development, which will kick off next Wednesday. Need to pick up my credentials so I can gain access to activities at that location next week.

Unfortunately, between the events and the networking, there won't be much time to enjoy the sights of Rio, although the Rio+20 event is at a hotel facing the ocean, so occasional glimpses of blue skies and water are nice.


Eric Hespenheide
Partner
Deloitte & Touche LLP


About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2012 Deloitte Development LLC, All rights reserved.

06/21/2012

Rio+20: Deloitte + Me, Contributing to the global sustainability dialogue

The world is quite literally coming together in Rio for a few days 20-22 June to build consensus on a more sustainable course for our planet.  The unifying event is the United Nations Conference on Sustainable Development, which has a much more catchy title:Rio+20.

Organized by the United Nations, Rio+20 will enable thousands of government participants as well as many from the private sector—including Deloitte—to play a critical role in creating some innovative business solutions with long-lasting social and environmental impact. A related event being held in Brazil’s second largest city in the days leading up to the UN Conference on Sustainable Development is the Rio+20 Corporate Sustainability Forum, which will focus more on the business contribution to sustainable development.  The number “20” is a reference to the years since the1992 Earth Summit in Rio where many countries rallied for the first time around a blueprint for economic growth that would consider social equity and environmental issues. 

Needless to say, a lot has changed in 20 years, and I am excited to play a role in these significant public policy and business discussions.  My “day job” with Deloitte is manager in the AERS Advisory Business Risk practice, serving Deloitte U.S. member firm clients in the Life Sciences industry through the Governance, Regulatory and Risk Strategies (GRRS) and Financial Operations and Controls Transformation (FOCT) market offerings.  However, my exposure to the Rio+20 Conference is through a pro bono secondment to the UN Global Compact.  The Global Compact helps businesses align their strategies and operations with key principles around human rights, the environment, poverty, and anti-corruption.

Deloitte’s role in Rio+20 comes as a result of our tradition of providing pro bono assistance to our long-time client, the UN, and more specifically in this case because of our firm’s commitment to our sustainability member firm clients.  Deloitte’s sustainability practices are focused on helping companies rethink business fundamentals around thoughtful growth, resource efficiency, and environmental impact.  I consider myself fortunate to have this opportunity early in my career to clear my head of “business as usual” thinking and instead to envision the possibility of helping  create a new way of thinking about responsible business practices—about the future; maybe even an entirely new paradigm.

In my advisory work at Deloitte LLP, the U.S. member firm, my team constantly challenges clients to consider new and better ways to think about their approaches to people, processes, and technologies.  Companies that wait, we caution, may find themselves spending more time and money later on playing catch up.  The same can be said about getting a leg up on sustainability issues.  Rio+20 aims to build more global agreement among public and private institutions about a sustainable future path for development, growth, and cost savings.  I’m learning a lot about the rewards to be found in the game-changing opportunities presented by our consulting work in the areas of water stewardship, climate change, supply chain efficiency, emissions reduction, and energy access, to name just a few. 

I’m proud that Deloitte is a major player—an increasingly well-recognized brand—in this space.  If I can help contribute to the dialogue that sustainability is a driver—not a constraint—for innovative thinking and growth then my work on Rio+20 planning and logistics will have been very professionally fulfilling on many levels.


Ryan Morgan
Manager, Advisory Business Risk
Deloitte LLP


About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2012 Deloitte Development LLC, All rights reserved.

 

06/13/2012

Mindset shifts coming for both managers and employees

As the workplace becomes more virtual, is your organization ready?

Managers who still believe that the size and location of their office reflects their “status” and employees who practice “out of sight, out of mind” as the safest way to survive in a volatile job market are both in for a rude awakening in the not-too-distant future.  The long-standing belief that the physical workspace is the critical center of productivity is falling away and is being replaced by the realization that work is more about what we do, and less about where we go.

The influences of rapid technology advances, pressure on management to reduce the cost of operations, and the “no-borders” mentality of globalization are changing how we work.  For example, the so-called work day is rapidly becoming a 24x7, continuous business cycle.  Geographic location and distance no longer limit the ability of workers to instantly communicate and collaborate.  A work force is no longer defined as a homogenous group of individuals working in a single location.  These changes have resulted in less emphasis on the actual workplace and have diminished many of the traditions associated with organizational structures, such as the prestige of landing a corner office.

The result is a whole new way of thinking about how and where we work, including acceptance of the reality that we are increasingly mobile and our workplaces increasingly virtual.  One hundred percent virtual work is not likely or even remotely feasible in most workplace situations, but the prospect of real integration of virtual and in-person work that allows flexibility and cross-border, cross-time-zone leverage offers undisputed benefits. Clearly, there are real benefits for sustainability and corporate responsibility—from office footprints to energy production and consumption, and from environmental impact to human productivity.  This is a new area of corporate branding to which more companies are paying close attention.

As more organizations transition to virtual workplaces, productivity and technology tools continue to evolve to support the change.  Consider, for example, the extraordinary developments over just the past year or two in the ability to hold impromptu “live” group meetings via tele- and video-conferencing, instant messaging capabilities, and enhancements to multi-platform communications and Internet access. 

Consider the implications for your organization

Workplace strategies are evolving in tandem with workplace changes—are you and your organization ready to rise and meet the challenges that will be involved?  Even if you don’t see clear evidence of the virtual workplace shift today, it is coming, and those who start to think through the implications now will likely be ahead of the game later on.

In our work within our own organization and with our clients, we have observed that many obstacles to making virtual workplace practices a part of the suite of tools available to managers and employees are more a matter of mindset change than any other factor.  Companies should  focus on laying the groundwork early for the mindset shift from an “activity-based” to a “results-based” organization.  This requires a workforce composed of professionals who know what it takes to achieve the expected results and who are led by managers who trust the professionals who work for them.  Both managers and employees must understand their individual roles and how to work together across locations.  When the right mindset, clear roles and responsibilities, and accountability/trust factors are in place, adding a virtual component to your business may be a non-event.  Moreover, Deloitte sees evidence every day that this may actually improve your bottom line, while providing employees with some much-desired flexibility, and ultimately result in their increased loyalty and dedication to your organization.

Benefits outweigh challenges

Achieving improved margins, serving customers more responsively and more flexibly, positioning your organization as a sustainable and responsible employer, and competing effectively in the talent market by offering employees more workplace choice and flexibility are just some of the outcomes that can make this journey worth the trouble.


Burt Rea
Director
Deloitte Consulting LLP




This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2012 Deloitte Development LLC, All rights reserved.

06/06/2012

Navigating difficult eco-labeling terrain

As the number of eco-labels in the marketplace continues to grow, exceeding 430 labels, the terrain continues to present many challenges. The consumer response has been less than impressive, though when asked, many consumers state they would likely prefer to buy a product with an eco-label on it. Not only is the sheer number of eco-labels adding to consumer confusion, for many, the message itself is not clear. The fewest of labeling organizations (usually third party entities) are effectively tracking performance of certified enterprises. Finally, early adopters are concerned that in sectors, such as fisheries, where a growing number of suppliers are certified to the Marine Stewardship Council (MSC) the label is no longer distinctive enough. Add to this that the Federal Trade Commission is increasing scrutiny of eco-labeling, and it is tempting to draw the conclusion that there’s little value to be gained from pursuing certification or even putting an eco-label on a certified product.

Signs of positive change

However, Deloitte research finds that many large companies strategically pursue product certification as a way to signal that their product(s) have achieved a certain standard.  Change is being driven by growing B2B demand for sustainable products, in large part by the entrance of federal procurement officers such as the U.S. General Services Administration who need to comply with an executive mandate to buy more green products, meet ambitious corporate sustainability targets, and ultimately the expectation of increased consumer demand. For these companies certification, and to a lesser extent eco-labeling, can in some cases be essential to bringing products to market; particularly in states with mandated green purchasing guidelines (e.g. Pennsylvania, Massachusetts, Vermont, Maine and Connecticut). Longer-term competitive advantage can be gained by using certification and eco-labeling to raise the visibility of sustainability initiative and to achieve ambitious sustainability targets. Finally, some companies view this as a brand play, where the eco-label aligns with the brand strategy, adds a new dimension to the brand value proposition, improves the company’s image and market position.

Credibility moves front and center

Our research found general agreement that credibility should improve in terms of who certifies the product and how the eco-label is designed. Certifying organizations should:

  • Be transparent in the development of criteria and decision-making process
  • Be staffed with general knowledge and specific scientific know-how
  • Provide clarity on how the data is evaluated
  • Permit applicants to approach reviewers for clarification
  • Protect confidential data
  • Refrain from financial conflicts of interest
  • 

Preferred eco-labels should be:

  • Designed by credible representatives from NGOs, industry and regulatory agencies (e.g. U.S. EPA)
  • Objective, with scientific merit and justification, based upon a recognized scientific test that can be easily documented and yields clear results
  • Multi-attribute, LCA-based
  • Do not overstate or misrepresent benefits on the label
  • Dynamic (e.g. not a static a check list) with criteria that allow for improvement in product performance and product innovation, including the possibility to substitute another ingredient in a product formulation.
  • Have market recognition – or at least the potential
  • 

Eco-labeling and certification are permanent fixtures in this economy. When companies take a strategic approach we can expect higher quality certification, and possibly some convergence around a smaller set of better-known labels. 

 

Chris Park
Principal
Deloitte Consulting LLP

Dinah A. Koehler, ScD
Sr. Research Manager
Deloitte Services LP

 

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP.  Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.  Certain services may not be available to attest clients under the rules and regulations of public accounting.

 Copyright © 2012 Deloitte Development  LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

05/24/2012

No water, no energy. No energy, no water.

We have been talking about the interrelationship, or nexus, between water and energy for some time now, so when I first learned about the 2012 Deloitte Energy Conference I saw an opportunity to expand the dialogue—to help advance thinking that could move us toward solutions.  I teamed up with Joe Stanislaw, one of Deloitte Services LP’s leading energy consultants, to present a panel at the conference, “No Water, No Energy.  No Energy, No Water.” 

The conference was held on Monday and Tuesday of this week in Washington, D.C., bringing together energy executives, investors, regulators, and Deloitte professionals from around the globe to network and explore insights and ideas on developments and challenges facing our global and domestic energy markets.   We viewed the panel as a way to highlight a few, targeted actions that businesses and industry influencers can take right now to build awareness of water scarcity and how that problem relates to energy production, and to spark creativity about what we can do to conserve, become more efficient, and innovate new solutions.

 The title of our panel presentation actually sums up the issue quite well. You can’t generate energy without water and you can’t deliver water without energy.  In view of increasing scarcity of water and competition for water, it is important to do better.

The facts are these: the era of cheap water is over; water and energy are inextricably linked; water is expected to be the next “hot” commodity and the corporate water footprint is anticipated to be the next tipping point for almost all energy companies.  In short, water stewardship is an idea whose time has come for virtually all industries, but especially for the energy sector.  Several dozen participants, including executives from oil and gas and utilities, joined us for the discussion.  They were a group that understands that energy is a primary engine of growth and that we can no longer sit still and practice “business as usual.”  Among other considerations, the sheer competition for energy and fresh water raise serious concerns about economic development, national security, and the general well being of the public.  We talked about public and private sector pricing of water, the impact on infrastructure projects, the effect of water scarcity on shale gas and oil sands production.  These are complex and intertwined issues, involving emerging nation challenges, environmental regulations, the future of food shortages and the agricultural industry, among many other considerations.  But the point is we have to start somewhere in moving toward viable solutions. 

Many of the participants may be/are aware that water is NOT actually a free good and that we should come together to understand how to share this scarce and precious resource.  Joe and I talked about the need for virtually every public and private sector organization to develop a water stewardship strategy.  We suggested a few specific actions for “managing the nexus” effectively:

Water generally

  • Track water use against energy use
  • Develop an understanding of your water footprint and water risk within the watershed
  • Engage stakeholders within the watershed to develop a collective water and energy conservation and management plan

Energy and power specific

  • Adopt “watershed-scale thinking,” which is viewing energy development and power generation within the context of the local watershed
  • Consider renewables for watersheds that are experiencing water stress or scarcity
  • Engage stakeholders within the watershed to develop a collective water and energy conservation and management plan

The bottom line is that we need some breakthrough thinking—and we need some deep innovations—to help facilitate improvements in efficiency, approaches to new exploration and production, and fresh water solutions such as desalinization.  In my experience, when we ask people to do more with less, we tend to get creative.  Today’s water and energy challenges represent a huge business opportunity, and we look forward to great innovations coming out of the opportunity/innovation nexus.


Will Sarni
Director
Deloitte Consulting LLP

 

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2012 Deloitte Development LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

05/17/2012

Investor interest in water risk on the rise


“If you don’t have water, you don’t have business…”
1


One of the world’s most-taken-for-granted resources is also one of the world’s most foundational requirements for business growth.  In fact, it can be said that water is a strategic resource for most global businesses, some more obviously dependent on access to plentiful supplies of water (food and beverage industries) than others (mineral extraction, clothing and semiconductor manufacturing, pharmaceuticals). 

As growing populations, increased economic activity, drought, and pollution take their toll on widespread availability of water, increasing numbers of senior executives are coming to view water as a substantial risk to their business.  Clearly, water scarcity and increased competition for water, once issues of emerging economies now are issues of riveting interest to company stakeholders worldwide. 

Executives see impending risks—and opportunities

In Deloitte’s work with the Carbon Disclosure Project2 to survey and report on executive awareness of global water issues, we have seen an upward trend over the past couple of years in the perceived level of risk exposure associated with water scarcity in both direct operations and supply chain operations.  In our 2011 survey, we saw 59% reporting at least one such risk, and more than 65% of these same respondents report having a potential for this type negative impact now or within five years.
  

At the same time, 63% of respondents consider water scarcity as a potential driver of innovation in their companies.  They foresee opportunities in water efficiency, revenue from new water products or services, and improved brand value through effective handling of water issues. 

The bottom line is that water can present a significant near-term risk and significant near-term opportunity, yet awareness of risk to operations (especially in supply chains) is still fairly limited, and water management lags climate change as a sustainability issue on boardroom agendas. 

Liquid asset—or liquid liability?

For water, this two-sided coin of risk/opportunity translates the essential resource into either a liquid liability or a liquid asset.  Our focus centers on specific stakeholders who should understand a company’s water risks and opportunities, in particular investors who have a direct interest in how well a company manages its water responsibility, that is, mitigating risks, seizing opportunities, and communicating its positions and progress.  Increasingly, for example, we see investors looking for water-related financial disclosure (e.g., reports of SEC inquiries, lawsuit risks, minimization of environmental and usage impacts) and federal and state disclosures (e.g., exposure related to fracking, chemical waste, disposal incidents, financial impact of fines and penalties).
 

We see the evolution of a new paradigm for water use and management that includes initiatives such as improved water data acquisition and analytics, precision agriculture, improved water efficiency, addressing water losses, developing energy-efficient water treatment technologies, and a move to extract energy and nutrients from waste water.  Our approach to “getting there” includes:

  • Identifying regulatory, legal, and shareholder interests
  • Assessing disclosures and comparisons to industry benchmarks
  • Evaluating strategic, operational, and financial implications
  • Monitoring controls and measuring compliance
  • Reporting disclosures across financial and regulatory requirements


Is your company an effective water steward?  How well is it addressing investor concerns?  Have you thought about collaborating with another involved entity to improve your water-related competitiveness and reputation—and make a substantive contribution to global water stewardship?  Reliable water resources are a foundational element to revenue and market growth—perhaps even survival.  Now is the time to consider acting.


Kathryn Pavlovsky

Principal
Deloitte Financial Advisory Services LLP

Will Sarni
Director
Deloitte Consulting LLP



1
Element Investment Managers, 2010

2CDP Water Disclosure 2011 Global Report, www.cdproject.net

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2012 Deloitte Development  LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

05/09/2012

PEIs ponder the implications of sustainability on performance and reputation

Several leading private equity investment (PEI) firms have embraced the importance of assessing sustainability and environmental risks and opportunities in making investment decisions.  It was only four years ago that a major private equity organization partnered with the Environmental Defense Fund to establish the first “green portfolio” of companies, focused on environmental performance improvements.  In a relatively short amount of time, there is substantial interest in reviewing social, environmental, and governance factors that might produce tangible and sustainable improvements in business performance and profitability.

PEIs are a natural target

It makes sense that private equity firms were targeted for action in this area.  After all, the management of these firms is well positioned to incent their member and portfolio companies to prioritize sustainability and environmental issues as top value drivers and as a means to surface risk management concerns.  In addition, as PEI involvement has evolved and matured, sustainability/environmental factors have become a greater part of the acquisition decision process; these factors can be strategic drivers imbedded in the due diligence process to help identify a company’s potential for value improvement.

For some time, Deloitte has taken the view that investor interest in social and environmental responsibility matters will continue to grow.  But we also recognize that it can be more difficult to identify and assess risk in turbulent times, and these certainly are times that present special challenges on many levels—from global economic recovery and constantly changing regulatory requirements to rising energy and power costs, and natural resource supply constraints.  Taking all of this into consideration, we work with PEIs to apply a strategic, structured approach involving analysis frameworks that balance portfolio-wide and company-specific priorities across the entire PEI lifecycle.  This approach can help them chart direction and better allocate both resources and management time.  Ultimately, our goal is to help maximize performance and meet intensified stakeholder expectations—including those of investors, business partners, regulators, customers, employees, and consumers. 

Four steps to uncovering value

Toward this end, we developed an approach that helps determine which sustainability risks or opportunities would be most likely to affect a company’s value.  Our approach features four key steps: 1) Identify both existing risks and opportunities as well as use trend analyses to anticipate what will drive future demands; 2) Determine which strategies and initiatives to fund, defer, or reject; 3) Prioritize risks and opportunities based on multiple criteria that will help identify those with the greatest possibility of a positive outcome, and 4) Decide resource allocation that is aligned with capital planning and that offers the greatest long-term benefit and return.

Sustainability is a critical business issue and has significant potential to differentiate investment opportunities, unlock hidden value, and effectively manage risk.  PEIs can get out in front by proactively targeting portfolio companies that effectively address sustainability risk and opportunities and demonstrate that they are managing these matters on a prioritized basis.  It is one potential way of doing what is right while also uncovering value, meeting compliance needs, and elevating brand image.


Kathryn Pavlovsky
Principal
Deloitte Financial Advisory Services LLP



As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries.  Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.  Certain services may not be available to attest clients under the rules and regulations of public accounting.  

Copyright © 2012 Deloitte Development  LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

04/25/2012

Energy Management Strategy: Energizing profits and insulating risks

Over the past year, Deloitte has seen a noticeable change in business and government thinking about energy and water resources.  Executives have more than an awareness of the opportunities to positively impact cost and risk to their organizations by addressing supply and consumption of these business critical inputs.  And, I think decision makers have recognized that aligning energy and resource management initiatives to strategic goals or government mission has an impact on; reputation, top and bottom line, employee motivation, and risk reduction.  When you think about it, very compelling outcomes can result from clarity on this issue.

One of the persistent challenges executives face is determining how much information is required to meaningfully impact energy management strategy and operations.  Is there a diminishing return on data collection and analysis and how does an organization determine what is the ‘right’ approach or appropriate management program to address energy and water management?   Another challenge and opportunity for executives is understanding how new supply technologies could be harnessed to deliver operational and strategic advantages.  We are having a lot of conversations with executives about new technology and innovation; from water treatment and re-use opportunities to distributed power and the potential benefit and application of abundant natural gas supply in the United States.

In the first two decades of the 20th century we experienced a transformation of the global economy as the availability of power energized industry and machinery replaced manual labor.   Today, we are RETHINKING business fundamentals around; people, power and technology again.  As the private sector struggles with growth and the public sector aims to seriously reduce costs, I am convinced that the days of assuming there is little an organization can do about energy costs are gone, and that innovative leaders are focused on energy as a key input to operations and therefore an area worthy of scrutiny and new solutions.  Those same leaders define energy in a broader context, too, extending beyond electricity and traditional petroleum products to include components such as water and natural gas.  The most successful of their efforts likely go far beyond resource conservation initiatives alone; the big differences will be made by viewing and managing energy more strategically.  As such, key resources becomes the foundation of an enterprise-wide strategy that treats energy as a manageable asset capable of yielding significant efficiency, improved profits, enhanced competitive advantage, and designed to help insulate the organization from market uncertainty and risks.  In short, it is a strategy designed to both protect existing assets and create new economic and brand value.

This is an opportunity to stop looking at business as usual and create a new paradigm, a new way of thinking about the future.  Rather than being threatened by the need to change, these challenges should be embraced and used as a lever for innovation.  At Deloitte, we encourage our clients to rethink their energy approach on three specific levels: processes, technologies, and people.  Breakthroughs in data management systems, for example, can pave the way of better collection and analysis of information about energy use.  This will likely be followed and supported by changes in human behavior that take full advantage of the combined improvements in data capture and consumption processes and reporting.

The coming decade is expected to present difficult energy challenges for businesses and the public sector: will your organization be ready?  As with any dynamic situation, there is no need to wait for a silver bullet—you can start now; define your priorities to target for improvement, begin to identify viable solutions, introduce cost saving steps, and measure results associated with efficiency and better risk management.  By involving employees in the process, you also help them understand how their behavior impacts the big picture.  You’re on your way to establishing that new paradigm!


Rebecca Ranich
Director, Federal Energy & Resources Management
Deloitte Consulting LLP

 

As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2012 Deloitte Development  LLC. All rights reserved.

Member of Deloitte Touche Tohmatsu Limited

04/17/2012

Supply Chain Collaboration: All for one and one for all

When I look at a supply chain, I see a vehicle for driving value.  I know that by applying a sustainability lens to inputs and outputs up and down your supply chain, you can likely achieve savings and efficiencies for your company.

Now, just imagine the power of that same process if every supply chain participant collaborated in the effort!  Why?  Because whether you look at raw materials at the beginning of the chain or go all the way through to end-of-life, all parties share a common experience—there is only one revenue stream for every three expense streams.  They should make effective use of energy, carbon, natural resources, and waste management.  They might use different materials, different amounts of energy, produce different components or products, and throw off different types of waste or end-of-life disposal requirements, but every supply chain partner uses some form of raw materials and energy and produces some form of product and non-product.

We call exploring savings in these areas a “resource-focused approach” to supply chain efficiency.  By collaborating, supply chain partners can potentially achieve positive savings and value.  In fact, this is where the paradigm can shift—from incremental adjustments that lead to savings for one party to potential benefits for all parties.  In addition, many solutions uncovered in a resource-focused approach are relatively simple to implement, may feature rapid payback, and usually introduce no new risk.

The key is effective collaboration.  The output of one vendor along the supply chain becomes the input for another.  This dynamic can pave the way for building mutually beneficial relationships along the chain and can likely have a transformative effect on the performance of companies up and down the chain.  I also believe that companies who do this well may be better positioned strategically, financially, and operationally to seize new market opportunities and counter marketplace threats—from new competitors, commodity price volatility, and strategic sourcing issues.  Done well, this collaboration among supply chain partners can be a true win-win-win for all involved.


Sanjay Agarwal
Sustainability Leader, Operations and Supply Chain
Deloitte Consulting LLP

04/11/2012

Cap-and-trade regulations are here: Time to choose the compliance level that meets your company's needs

Even though cap-and-trade legal limits on gas emissions are not yet happening at the federal level or in most states, California steadily marched toward a January 2012 launch of its program, which covers the electricity generation industry sector, covering about 360 companies at 600 facilities.  By 2015, enforcement in that state will extend to transportation, residential, and commercial fuels, which account for 85 percent of the state’s total carbon emissions.  It is clear that, over the next couple of years, California’s current actions will have far broader implications beyond state lines.  At a minimum, the California model will set a precedent in what is likely to be a continuing carbon emissions issue, and it will directly impact operations of suppliers of electricity into the state.

So, love ‘em or hate ‘em, legal limits on greenhouse gas emissions are an emerging business reality that many companies will likely have to manage.  Much like the experience of Europe in this area, the California model will feature a fixed cap with trading that gradually declines over years.   Eventually, this could have a material, financial impact on companies subject to the cap.  In short, it’s time for companies that will be subject to this new law to start getting ready.  From a risk management and business efficiency perspective, for example, it makes sense to develop an awareness and understanding of how emission regulations may expose your organization to pricing and other market risks, how it can impact your supply chain, and ultimately how it affects your resourcing, competitiveness, and bottom line.

In our work with clients, we are seeing three strategic approaches that companies can take now to get ready.  Each is distinguished by its level of compliance, and, subsequently, degree of overall responsiveness:

1-The first option can be described as basic compliance in which the company does just enough to satisfy requirements without making any major changes to operations.  This approach involves buying necessary allowances at prevailing market rates to cover anticipated emission levels.

2-The second approach is what we call enhanced compliance, because the company engages in forward-looking data analysis and scenario planning to identify carbon portfolio options that align with the organization’s business goals and risk appetite.  In other words, you don’t just comply, you create business value through strategic management of your carbon portfolio.

3-We call the third option beyond compliance, as it involves a holistic, ROI-based review of operations--and perhaps those of your supply chain partners--to explore ways to become more efficient and cut emissions and waste.  It employs the same type of data analysis found in option two, but drills deeper into how your organization and suppliers actually use energy and what the external market factors are, enabling you to identify more ways to add to your bottom line and to more effectively integrate compliance efforts throughout your organization.

When cap-and-trade starts to become a reality for your organization, the first step will be to understand how the new regulations affect your business and when.  Beyond that, it becomes a matter of some degree of choice.  Whatever direction you choose, we believe now is the time to start developing a data-gathering and reporting approach that aligns with the needs of your business.  Moreover, we believe that the three options described above offer an important strategic way of thinking about your compliance needs and options, rather than only a limited focus on compliance per se.  Companies that wait may find themselves spending increased amounts of money and resources later on; and early birds might just get an important leg up. 


Stephen Engler
Director
Deloitte & Touche LLP

04/04/2012

Impact Investing - UN Women Gender Equality for Sustainable Business

As March marked "Women's History Month", the theme of the March 6th UN Women and UN Global Compact Gender Equality for Sustainable Business event supported the assertion that women are key assets in combating poverty, building their communities and to advancing progress toward a sustainable world.

With the lead-up to the 2012 UN Conference on Sustainable Development (“Rio+20”), the concept of “Impact Investing” will be among the key drivers in leading business towards a sustainable development path.  Rio+20 will seek to build a global consensus towards greater environmental, social and economic sustainability, and that gender equality and women’s empowerment will be at the heart of sustainable development. Women's empowerment yields strong economic returns and is critical to achieving a wide range of development and societal objectives.

Deloitte and the member firms of Deloitte Touche Tohmatsu Limited (“DTTL”)[1] are strong supporters of the UN Global Compact and efforts to advance the dialogue that business solutions are critical to making a sustainable future a reality.  However, without 'enabling frameworks' in place to facilitate comparison and evaluation of the social enterprises driving such business solutions, efforts will lack scale and consistency. Deloitte brings an informed perspective to this debate, given our leadership in advancing the impact investing infrastructure development and standardized approaches to measurement of the social impacts of business and how those impacts influence financial returns.

“Impact Investing” is an increasingly popular buzzword, given the growing interest of investors in gaining greater insight into the wider impact on society generated through investments.  With the multiple approaches to and definitions of Impact Investing, it was critical to frame the collective thinking around common definitions to facilitate the development of an asset class to scale and drive increased private sector capital into this space.

Impact Investing, as defined in the 2010 J.P. Morgan Report, Impact Investments – a new asset class, includes investing with the intention to create positive social or environmental impact alongside financial return. Impact investments are made around the world in mission driven for-profit social enterprises focusing on the base of the pyramid population, or traditionally underserved populations.  They target social and environmental issues, such as education, affordable housing, healthcare, clean water, and alternative energy, sectors that are traditionally underinvested due to conventional risk and return profile. 

The foundation of any industry is independent, credible standards for consistent measurement of performance. Deloitte assisted in the creation of the Impact Reporting and Investment Standards (IRIS), which provides a framework and common definitions for measuring social and environmental performance of impact investments. With this infrastructure, serving to bring order to the previously fragmented and inconsistent measurement practices, the Impact Investing industry has great potential to build an evidence base about the effectiveness of for-profit investment in addressing social and environmental challenges.  Deloitte’s work in this space, which also includes our role as a Pioneer Funder of the Global Impact Investing Ratings System (GIIRS), serves to advance our focus on assisting our clients in drawing linkages between company sustainability initiatives and investment in market-based solutions to scale sustainable economic development.


Kristen Sullivan
Partner
Deloitte & Touche LLP


[1]As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries.  Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.  Certain services may not be available to attest clients under the rules and regulations of public accounting.  

03/28/2012

Finding Business Opportunity in Supply Chain Sustainability

As I’ve discussed in this space before, there are great rewards to be found in the form of reduced costs and enhanced shareholder value by looking for incremental savings across all phases of your supply chain and those of your suppliers.  In addition, I also know that there are game-changing business opportunities available by thinking differently about operational efficiencies.  In other words, sustainability is not a constraint; it can actually serve as a driver of innovation and growth.

By looking at processes and end results through a sustainability lens, companies may start to see new approaches and benefits emerge.  For example, a consumer products company focused on designing a new concentrated detergent that would reduce carbon expenditure and process waste, also ended up producing a detergent that would work equally as well in cold water as hot, thereby adding the consumer benefit of reduced energy consumption.  Similarly, companies that make packaging materials have taken steps to reduce the resources that go into their products and to make the disposal of those materials more cost-effective and environmentally friendly.  An added benefit has been realized in the deliver/distribution phase of the supply chain: lighter, more compact packaging provides more containers of product to be shipped in the same size trucks.

This is what I call “total lifecycle thinking,” because as we carefully study and analyze each node along the supply chain we find new and better ways to make things that produce bonus benefits, often beyond the ones we were aiming for in the first place.  Sustainability is a value imperative that can lead to leaner manufacturing practices, higher quality through fewer defects, and flexibility in sourcing and processing that can enhance response to changes in demand.  But in order to achieve total lifecycle thinking, we must be open to new ideas and to greater collaboration with suppliers and consumers.

Rather than being a constraint, I believe supply chain sustainability can be quite liberating—in a very profitable way.



Sanjay Agarwal
Sustainability Leader, Operations and Supply Chain
Deloitte Consulting LLP

03/21/2012

CDP Report 2011: Clear signs of growing awareness of critical water issues - and opportunities

Recent release of the CDP Water Disclosure Global Report for 20111 brings evidence that the dial has moved on how companies perceive water scarcity as a business risk.  Just since the 2010 report, a significantly larger number of companies recognize that water scarcity represents a very real business risk in the near term.  It is becoming clear that water is a resource issue many leading companies are feeling now, or that they expect to feel in an impactful way in the next few years.  Nearly 60% of CDP study respondents identify water as a substantial risk to their business, and one-third have already suffered some type of recent, water-related business impact.

In addition, another key finding in this year’s study was that almost two-thirds (63%) of respondents view water issues as an opportunity—for cost reductions associated with efficiency, to new revenue from water-related products or services, and for brand enhancement.  Further, 79% of those potential opportunities are expected to impact business in the next five years.

What is our take on these substantive shifts in business perspective?  First and foremost, this topic has transitioned from being one that is “interesting” to watch to one that is essential to understand and translate into constructive action.  We believe the 2011 findings show that business has entered a new phase in which water issues are viewed as having:

  • Strategic business implications with associated risk
  • Near-term impact—whether risk or business opportunity
  • Potential for innovation in products (e.g., water treatment), services (e.g., data analytics), or relationships (e.g., water is a shared resource that requires collaborative stewardship efforts)

In particular, the study demonstrates that water can have value that goes well beyond its price.  For some companies, for example, it has reputational risk and corresponding brand value.  For others, it has regulatory risk, and, as such, should be managed as a compliance issue.

The study’s response rate alone demonstrates that water scarcity interest and concern is on the rise.  The CDP study seeks respondents from hundreds of the world’s leading companies, including those in the FTSE Global Equity Index Series (the Global 500).  The 2011 survey generated a higher response rate overall—increasing, for example, to 60% from 50% among the Global 500 as compared to respondents from that group in 2010. 

In summary, we are seeing the shift to a new paradigm in water management, where water is recognized as a strategic resource. Growing populations and increasing economic activity associated with declining water access and quality can lead to increased competition for water.  As is usually the case, the more everyone competes for a key resource, the greater its value.  We are proud to be part of CDP’s effort to increase awareness of the importance of water related risks and opportunities. We believe water will likely continue to be a factor in business success—even competitive advantage, survival—for a long time, and we’re working with concerned companies to transform their businesses accordingly. 

Will Sarni
Director
Deloitte Consulting LLP

1CDP Water Disclosure Global Report 2011, Carbon Disclosure Project, www.cdproject.net.

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2011 Deloitte Development LLC. All rights reserved.

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03/14/2012

Interest grows in using data analysis to drive safety solutions

Intending to provide employees of a safe working environment is a top priority — and a social imperative — for any effective organization.  But it’s also an important economic driver: workers’ compensation claims and other direct costs related to on-the-job injuries totaled over $53 billion in the U.S. in 20081.

Increasingly, safety analytics plays a role in helping organizations advance employee and customer safety programs and bolster loss prevention efforts.  One recent piece of evidence to this effect was my invitation to speak to an American Society of Safety Engineers Conference (ASSE). ASSE is among the largest organizations of its kind, and we were gratified to see such great interest in connecting safety analytics with stepped-up safety processes among members of this respected group.

Safety

Why the connection?  Because specialists/experienced practitioners can see from lagging indicators on the claims side that there is a benefit to looking at leading indicators on the prevention side. Stated differently, what do we know before an accident happens that would help prevent the accident from happening in the first place?  I know from my work with our clients that visibility into analytics can help business managers make more defined, objective, and, ultimately, more economically favorable decisions.

This is achieved by applying data mining and statistical techniques to modeling of factors that can contribute to accidents and/or lessen the negative impact of an accident or injury. In addition to growing interest among ASSE members, consider steps insurance companies are taking with GPS-type tracking devices to look at driving patterns and other behavioral characteristics that might contribute to accidents.

Our message at the conference — and to all concerned companies — is straightforward: it’s about correlation, not causation. That is, predictive modeling techniques help to identify risk characteristics of a certain population, incorporate key external data to bring those insights into play, then help us correlate scores to a specific outcome. The analytics side brings the science needed to study underlying causes and contributing factors and combines that intelligence with areas of the operation that have high potential for risk. Using similar tools, injury management handling can be improved to help minimize business interruptions and absenteeism while providing positive support for healthier, more productive employees.

For one major retail company, we helped to identify a more precise way of spotting stores that had a high propensity for accidents.  Having this information enabled management to improve employee and customer safety programs and more effectively manage claims and treatment when accidents did occur. In fact, studies show that for each dollar spent on safety programs, $3 or more is saved!2  Most businesses depend on the health and safety of its workers to operate, and safety analytics can contribute to workforce sustainability by helping companies focus on the right issues and correlations. 


David Duden
Director
Actuarial, Risk & Analytics
Deloitte Consulting LLP

 

12010 Liberty Mutual Workplace Safety Index, Liberty Mutual Research Institute for Safety, 2010.
2Ibid.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

03/07/2012

The supply chain as a value driver

I’ve talked to many business executives who start out with the assumption that sustainability initiatives are about constraints and increased costs.  In reality, applying the sustainability lens to core operations actually can yield fresh, new approaches and add value to the business.  In particular, I’ve seen cases where a wealth of value can be derived at virtually all stages of the business supply chain — upstream and downstream, through internal operational efficiency as well as greater efficiency on the part of your suppliers.

Our experience shows that there are four key supply chain inputs and outputs that are especially lucrative.  They are energy, carbon, other natural resources, and waste.  After all, sustainability is about effective resource management, and we have seen time and again where a review of the efficient use and/or treatment of these four ingredients and outputs can produce financial benefits for the enterprise.

You may wonder, why these four?  It’s simple: they are ever-present throughout the entire supply chain, and, therefore, can provide a proxy for operational efficiency.  In addition, most are relatively expensive because they are scarce or difficult to extract.  And waste, of course, is just plain useless output.  Still other resources, like water, increasingly bring other complexities to the equation that go beyond costs, such as “license to operate” issues.

By examining these four metrics closely—from one end of the supply chain to the other, we can reduce costs, produce savings in rapid cycles, and take all of these actions while incurring relatively low levels of risk.  In short, we can impact shareholder value!  Isn’t this what we might call a “win-win-win”? 

Sustainability is no longer only about being green or fulfilling compliance requirements; it can be a critical driver of incremental value across the supply chain.  Don’t leave money on the table by ignoring the possibilities of greater supply chain efficiency.

Sanjay Agarwal
Sustainability Leader, Operations and Supply Chain
Deloitte Consulting LLP

04/20/2011

What's in a word?

The English language is a source of constant fascination for me. Particularly, when a younger generation changes the meaning of words; leaving their elders in a temporary state of befuddlement. Examples abound. Do you remember when “bad” became “good?” As in he or she is baaad! Most recently, my 12-year old son has taken to calling things that are good to the extreme, “sick.”

Words need not spring from the street to change, or at least evolve.

GreenCordTree 
From the Deloitte US 2009 Corporate Responsibility Report:
“It’s possible that the most intriguing word of the still young 21st century is sustainability. Early on, a business that was considered sustainable was one that could be expected to endure and sustain itself because it had a viable business proposition that represented more than fleeting value in the marketplace. During the post Sarbanes-Oxley era, sustainability became popular in reference to internal controls that were necessary to stay in business. Then, over the last five years, the growing wave of emphasis on the environment has made sustainability synonymous with greening and consideration of the consequences or impact that our actions have for our communities and the planet now and for generations to come.”

Somewhat vexing is the continued ebb and flow between corporate responsibility (CR) and corporate social responsibility (CSR). They often describe what appears to be the same thing. Do they mean the same thing? We don’t think so.

Is it an accident that Deloitte has a CR Policy? Not a CSR Policy? Ever wonder why?

I think it’s because at Deloitte, CR is a business imperative with bottom-line impact.  Eliminating the social allows focus on CR as a strategic business direction that’s consistent with our values and culture, but ultimately as smart as it is good. 

However, many admired organizations still use CSR, even some folks within Deloitte. Don’t they get it or are we missing something?  What do you think?

Jack McFadden, Corporate Responsibility Communications Director, Deloitte Services LP

As used in this document, “Deloitte” means Deloitte Financial Advisory Services LLP and Deloitte & Touche LLP, which are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.  Certain services may not be available to attest clients under the rules and regulations of public accounting.

03/22/2011

The Value of Water

What is the value of water?  March 22nd is World Water Day and a good time to reflect on this question. WorldWaterDay 

For most businesses, the price of water remains relatively inconsequential compared to other operating costs. The real value of water for business is tied to intangibles such as brand, reputation, license to operate, business continuity and as a driver for innovation.

But there is another aspect of the value of water for business -- arguably the most important aspect -- that is tied to the social dimension of water.

Currently, some 1.1 billion people lack access to clean water, and more than 2.5 billion people lack access to safe sanitation.  The implications of these statistics for a steepening scarcity curve are staggering, particularly as demand for water increases globally in many major sectors – industrial, agricultural and domestic.  The business implications are similar to the implications for society:  increased competition for water and a workforce that lacks access to a basic resource.

Based on innovative ideas presented at the Hult Global Case Challenge, solutions can be identified to help solve the water scarcity issue. I participated as a judge a few weeks ago in the second annual Hult International Business School Global Case Challenge (courtesy of Jack Russi and Cathy Benko from Deloitte).

The competition is focused on addressing the global clean water crisis in partnership with Water.org, an organization founded by Gary White and Matt Damon, and The Clinton Global Initiative (CGI). In competitions held in Boston, San Francisco, London, Dubai, and Shanghai, the international competition “crowd-sourced” innovative ideas from some of the world’s top students. The Hult Global Case Challenge, as a CGI member, has committed to working with fellow CGI members to solve one of the world’s most pressing resource issues.

The winners of each Regional competition will compete in the Global Final in New York City on April 30, 2011, co-hosted by the CGI. At the final event, the participating teams will present their refined solutions to a panel of executive judges. Water.org will receive a USD $1 million donation from Hult International Business School, which can be used to help see the winning team’s solution implemented.

The Hult competition draws attention to the alarming and indefensible lack of access to clean water and sanitation among many populations.  It is driven by a global business school competition, and social issues can no longer be artificially divorced from economic and environmental issues. (The cornerstone of sustainability is, in fact, the integration of economic, social and environmental risks and opportunities.) 

Based upon the passion, creativity and commitment of the students participating in the Hult Global Case Challenge, I am confident new pathways to solving the water scarcity challenge will be identified.

William Sarni
Director, Deloitte Consulting LLP

Will Sarni is a Director with Deloitte Consulting LLP and leads Enterprise Water Strategy for Deloitte Sustainability Consulting.  He is an internationally recognized thought leader on sustainability and is the author of the book, Corporate Water Strategies (Earthscan 2011).

03/17/2011

Risk: In Business Project Management, it isn’t a game

For me, the word risk used to invoke images of the classic board game, where players competed for world domination by building armies and invading opponents’ territories.  Players would draw cards to divide the global regions, and then roll the dice when attacking and defending the game’s political borders.  Developing a strategy – such as fortifying your borders, forming alliances and avoiding being spread too thin – is an important element of the game.  For instance, knowing that Oceania is the safest continent to protect and that Europe is the most difficult (a lesson we learned from Kramer and Newman) can give you an advantage over the other players.   While the outcome of the game of Risk is largely dependent on luck – luck of the draw, roll of the dice, and playing your cards right - it is still important to have a good strategy.

Now, when I think about risk, I think about the risk management challenges my clients, and those my Deloitte colleagues, face every day.  I think about the uncertainty and complex problems organizations must overcome when conducting business and planning for the future. 

I moderated a Dbrief this month on the strategies related to large-scale capital project management and investment.  A recurring theme my colleagues (Charles Alsdorf, Glen Justis and Joe Messick) and I identified during the development of the Dbrief was the risks impacting capital planning.  Such risks include:

  • Market Risks (e.g., volatile GDP, inflation, commodity pricing, rising interest rates)
  • Climate Risks (e.g., global climate change, seasonal weather patterns)
  • Regulatory and Policy Risks (e.g., federal budget uncertainties, political unrest, and changes to environmental, infrastructure, healthcare, education and tax policies, priorities and funding)
  • Competitor Risks (e.g., actions and responses)
  • Customer Risks (e.g., demand, willingness to pay, managing expectations)
  • Technical Risks (e.g., effectiveness, reliability, new technologies, standard protocols, R&D)

As you can see, there is a lot for organizations to think about relevant to risk when planning large-scale capital expenditures.  Fortunately, Deloitte’s capabilities go beyond simply listing the risks an organization must account for.  Deloitte has an “army” of leaders, skilled practitioners, industry specialists and game changers focused on risk management strategies.  Deloitte has developed models and identified key attributes for organizations to manage their risks, including:

  • Organization and Governance: Leadership, standards, policies and defined team roles
  • Business Process: Scheduling, work flow, reporting, project controls, and quality assurance
  • Communication: Documentation, report dissemination, feedback, KPIs, progress tracking

Risk management is only a single aspect to successful capital project management.  Benefit analysis, quantifying project robustness, modeling and simulation, portfolio optimization, funding and defining strategic value are other key factors to large-scale capital project management decision making - factors you’ll see outlined in our Dbrief.  Successful risk management can facilitate successful project execution.  And in business, risk is not a game.


M_Mokoyta 

Marlene Motyka
Principal
Deloitte Financial Advisory Services LLP Power & Utilities Leader

As used in this document, “Deloitte” means Deloitte Financial Advisory Services LLP and Deloitte & Touche LLP, which are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.  Certain services may not be available to attest clients under the rules and regulations of public accounting.

12/13/2010

Planting Down Roofs

  
In the course of your day how often do you look up at the skyline? Food, water, and shelter are the three elements of basic survival, and yet we do not spend much time thinking about shelter. Unless we are without it, it’s broken, or we are on an architecture tour, we tend to ignore the rooftops that populate our lives. With a few notable exceptions, like the movement from thatch to tiles to prevent fire hazards in 1212, based on an edict by King John of England, the evolution of roof technology isn’t that exciting. Things are changing however, and it’s time to start looking up, and thinking green.

A green roof (i.e., vegetated roof or roof garden) is a roof with vegetation planted over a waterproofing membrane. In Europe, green roofs are already abundant, yet their popularity is just beginning to grow  in the United States — particularly in crowded urban settings and cities. In Washington D.C., universities, advocacy groups, Federal Agencies, and condominiums are installing green roofs. Chicago has built one for its city hall, Philadelphia has installed them on schools, and Los Angeles on restaurants. They offer many substantial environmental and economic benefits, including:

  • Reduction in a building’s energy, heating and cooling costs
  • Minimization of storm water runoff,  city sewer fees, and the urban heat island effect
  • Filtration of pollutants and heavy metals from rain water and from ambient air, including CO2
  • Extension of the life of a building’s roof
  • LEED credits

What do green roofs mean in relationship to Deloitte?  Recommending that our clients consider installing green roofs on buildings is one example of the many ways we can help our clients achieve their sustainability objectives.  Helping our clients reach their greening goals is one objective I keep in mind while developing and defining the Energy & Natural Resource Management service offerings, as part of the Sustainability & Climate Change IMO. I’m not suggesting that we literally get our hands dirty and plant gardens on top of our client’s roofs, but we should be talking to our clients about how to take advantage of the benefits. And while it may seem backwards, starting at the top, by greening their roof, may be a great foundation for the rest of their sustainability efforts.

Greg Aliff  
Greg Aliff
U.S. Energy & Resources Leader
Deloitte LLP

11/30/2010

A Midas touch - turning sustainability programs into gold

As I mentioned in my previous blog post, sustainability reporting is a growing trend with implications beyond just greening your workplace. It’s also about the pursuit of benefits from cost savings to meeting stakeholder expectations and more! A key lesson for many, long-term gains don’t need to come at the risk of short-term profits. 

What are some benefits of successfully implemented sustainability programs?ProfitGreen 
Cost savings. Perhaps the most intuitively attractive benefit is cost and efficiency savings. However, for industries with high carbon intensity due to energy use, cutting waste of any kind is an economic imperative. The cost-saving know-how you gain through streamlining operations might present opportunities to turn your savings into new revenue streams.

Whoever figures out how to squeeze the most “bang” from their increasingly expensive resource “buck” will gain immediate advantage. Whether you start with energy, water, waste or raw materials, the metrics used to identify and reward savings, along with the systemic knowledge gained from tracking efficiency, may well illuminate new opportunities. Imagine if every product design not only had an accounting for its upfront value and cost, but also for the potential value and cost of any waste products and the future value of recycling its raw materials. The math might look a little different.

Competitive advantage. Sustainability and revenue growth need not be mutually exclusive. Traditional market factors such as brand image, price, value and production scale are impacting the environmental and social credentials of a given product. And in so doing, companies are establishing new market niches and upending traditional competitive logic. This bottom-up, supply and demand-based approach emerged from a combination of increased consumer awareness, greater public demand to understand the hidden (environmental) costs of products, and the realization that a product’s story can be just as important as its tangible qualities.

Accountability to shareholders. Investors are becoming a key driver of sustainability activities, establishing powerful groups and developing increasingly relevant measurements intended to persuade companies to disclose their triple bottom line risks and opportunities. Many institutional investors are demanding greater transparency and accounting for sustainability and climate change impacts. 

 

Indeed the competition is fierce in achieving listing on the Dow Jones Sustainability or FTSE4Good Indexes. While disclosure and reporting can win over some powerful investors, a more significant impact may be the initiation of a holistic approach to internal accounting. Once a company begins tracking environmental and social performance with the same degree of acumen reserved for its finances, it is expected that goals will become harder to renege on and progress will be more closely scrutinized. Sustainability reporting is under the microscope and the non-disclosure of material social and environmental progress within those reports could negatively impact an organization’s reputation.

Regulatory compliance. In the hopes of minimizing the potential impact on compliance with any new law, agile companies seek to position themselves ahead of new requirements, and collaborate with policymakers to ensure that their early or voluntary actions are recognized. Many companies appear to see a business case in beating the curve. A top-down regulatory approach often elicits a defensive reaction. But rather than consider shifting operations to another jurisdiction, some companies have found oversight to be a catalyst for innovation, learning to identify and design as much of the “waste” out of their operations as possible. The goal, then, becomes: How do I make this burden a competitive advantage?

A new mindset. The cross section of companies realizing early and increasing returns from their efforts in sustainability is diverse in industry, motives and execution. A key ingredient for success is an emphasis on building an organizational culture of accountability. For many companies that view sustainability as a secondary imperative compared with short-term financial performance, or for those that don’t sense a clear opportunity in their industry, it will take vision, commitment and leadership to motivate organization-wide change and innovation. Holistic, systems-based thinking is beginning to replace the assumptions that may incorrectly define sustainability as a trade-off or an add-on. Moving from an approach that treats the sustainability “suite” as a collection of risks to one that regards it as a toolbox of potential rewards takes time, but the most significant risks are those of inaction – a high cost in missed opportunities and stifled innovation.

Eric Hespenheide
Partner, Deloitte & Touche LLP

11/19/2010

A profitable shade of green

 
Ready, set, go! More businesses are joining the race to redefine the corporate bottom line, including the U.S. SEC, global stock indexes and many businesses from around the world. It’s becoming increasingly apparent that linking the interests of businesses, ProfitGreen_1 governments and consumers around the world is merely one degree of separation away. The challenges of carbon emissions management and coping with a resource-constrained, highly competitive future are two of the key components that fuel the trajectory of corporate sustainability activities.

Changes that address the financial impacts of resources, growth, carbon, ecosystems and climate change are fully underway. Many large businesses are maintaining (or increasing) investments in sustainability despite the economic downturn. Aligning strategies, business practices, systems and public image has emerged as a business and strategic necessity. Businesses, lenders and investors are now focusing on the long-term social, environmental and business implications of their strategies and capital allocations.   

An accurate assessment of business risks, costs and opportunities is the cornerstone of any successful enterprise. But how do you accurately account for such items? The 21st century has seen the advent of the triple bottom line which encompasses the environmental, social and fiscal value of corporate activities. Or, in the words of Amory Lovins, “We aren’t harnessing the full power of capitalism unless we start playing with a ‘full deck of capital' encompassing the material, financial, human and environmental varieties.” [1]

Whatever the motivation, be it the possibility of significant cost-cutting through efficiency gains, a desire to improve public relations, or the specter of government regulation, many companies are harvesting new and unexpected profits from their sustainability programs. For some, the waste products they had dismissed as a cost of business yielded a new product or revenue stream upon closer inspection. For others, public and investor scrutiny created a pressing business case to improve governance, controls and disclosure, reducing long-term risk exposure and potentially preempting regulation. For yet others, a commitment to reduce carbon intensity in-house led to lucrative innovations they could sell up and down their value chain.

There are inherent obstacles to any kind of systemic change as well as challenges in implementing new ideas even after the business case has been made. In addition, trends point to more government regulation, increasing stakeholder scrutiny, greater competition for resources, and skyrocketing global demand for energy. The issue of how to grow amidst myriad constraints is not going away. Perhaps more importantly, with a majority of executives polled by The Economist identifying senior management as having a key role in driving their companies’ sustainability efforts[2], confident and informed C-suite leadership appears essential to meeting these challenges.

Eric Hespenheide
Partner, Deloitte & Touche LLP

[1] Michael S. Hopkins, What Executives Don’t Get About Sustainability (and Further Notes on the Profit Motive). MIT Sloan Management Review, Fall 2009 (October 1, 2009).

[2] Economist Intelligence Unit (2010), Managing for Sustainability; 54% of Sustainability, CSR and Financial executives identify leadership by senior management as key to their companies’ efforts.

09/09/2010

Why IT really matters in executing sustainability programs

I wonder if any company has a really good handle on the wide range of policies, procedures, and processes, along with the many individual projects and programs, which relate to sustainability strategies, goals, and metrics. I’ve been asked if I could identify such a company. I’m still looking.

Do companies have good information regarding the results of their sustainability initiatives? Can they report with confidence measures of tangible and intangible benefits? Do they know if they have taken full advantage of tax incentives and rebates available to offset the costs of our sustainability initiatives? What’s been the actual ROI of abatement and mitigation investments? Do buildings with more natural light really improve productivity and morale, and lead to fewer employee sick days? Are there real impacts on productivity, recruiting or employee retention from sustainability programs?

In my experience, it is difficult to pull all the pieces of the sustainability puzzle together. Ask your executives. Ask your board members. Getting consistent, reliable information about sustainability investments, costs, and results is hard. I think it’s hard, in part, because sustainability initiatives are approached separately, sometimes being tacked on top of the business rather than embedding them into the business. The result is well-intentioned but disjointed efforts performed inside functional or geographic silos with hundreds – or even thousands – of isolated activities. This reality is why I am devoting my time, talent, and energy to “IT for Sustainability.” My focus is on frameworks and enabling technologies to help manage sustainability data and to improve the quality of information used to plan, manage, and report on sustainability programs. I believe there are significant impacts for information technology priorities, projects, and plans at least over the next several years.

Every company has to invest resources in sustainability related initiatives – whether or not they actually use the term “sustainability” or fully embrace the concepts of sustainability. This is just a fact of life in the current environment. So, why not do it in a way that creates more value and better manages risk? Decisions about what investments to make, and judgments about whether projects and programs are delivering the desired results, require reliable information. Monitoring of performance and enforcement of policies will require timely and accurate information. An information-driven approach to sustainability can give even the most complex organizations the power of discipline and the benefits of efficiency.

Making sustainability a central tenet in strategy and operations, rather than something bolted on top of existing business processes, will require new capabilities. No one seems to argue with this point. But when it comes to the question about the role of IT in managing sustainability, there is still much confusion and a lack of clarity. Some are rushing to buy new software tools. But few yet have well-thought out strategies and plans for managing sustainability data, or a roadmap for information technology changes to support sustainability. Even companies where sustainability is a strategic priority can fall into this trap. Some companies have invested in new carbon management software, for example, without first creating a holistic sustainability strategy for the enterprise.

I believe that when IT and business leaders take a moment to think things through, address the underlying needs, and together develop strategies and plans, they will seek integrated technology platforms for planning, monitoring, reporting, controls, risk monitoring, and performance management related to sustainability. Why? For starters, they won’t want a variety of new software tools deployed in different parts of the business. And who wouldn’t want a consistent measurement framework throughout the organization?

So how do we get the right conversations started about information technology and sustainability? IT departments have been involved in sustainability for years through “Green IT” initiatives that reduce energy consumption through data center and infrastructure optimization. This has been important and valuable work, producing tangible benefits. I believe it is time to focus on the broader role of IT in helping to execute sustainability strategies and achieve sustainability goals. To help expand the scope of the discussion, we need a new term that goes beyond IT’s energy saving efforts and encompasses IT’s support of sustainability programs, processes and performance throughout the enterprise. I suggest we use the phrase “IT for Sustainability” or ITFS to refer to this broader role. The use of “ITFS” here at Deloitte is inclusive, running the spectrum from our work on green IT to our assistance in automating sustainability reporting, from development of sustainability performance intelligence to more advanced enterprise sustainability analytics.

Without the right approach to information technology, companies will not be able access the relevant, accurate, and timely information they need to make informed decisions about their sustainability strategies. And as rising energy costs, evolving regulations, and increasing stakeholder expectations make sustainability measures even more important, organizations will need new and better information management capabilities to execute and monitor their sustainability strategies, programs, and projects. IT for Sustainability should organizations to measure, monitor, and report on their sustainability performance, allowing them to truly understand the impacts on financial and operational performance.

Lee Dittmar
Principal, Deloitte consulting LLP

04/12/2010

2010 . . . the year of carbon management

Despite the less-than-stellar outcome of the COP15, there are still many reasons to be optimistic about the ongoing dialog about carbon management in 2010. Even without formal legislation in place, committed organizations still trudge forward, dedicated to reducing the carbon footprint of their operations before it becomes mandated. These companies believe their brand will benefit from being an early adopter, they will achieve a positive financial impact from increased energy efficiency, and they will accrue security benefits from decreasing their dependence on foreign oil. In addition to the “usual suspects” of companies in the CSR space, there’s a surprise newcomer to the party:  the United States government. In a bold effort to move the U.S. government from laggard to leader, President Obama issued Executive Order 13514 earlier this year, which requires the federal government to reduce its greenhouse gas (GHG) emissions by 28 percent. As the United States’ largest owner of property, this represents a huge undertaking, and everyone from sustainability consultants to carbon accounting software providers is scrambling to get their piece of the pie.

 

Furthermore, as of January 1, 2010, large emitters are now required to report on their emissions under the Environmental Protections Agency’s new reporting system. According to this ruling by the EPA, “suppliers of fossil fuels or industrial GHG’s, manufacturers of vehicles and engines, and facilities that emit 25,000 metric tons or more per year of GHG emissions are required to submit annual reports to EPA.” Reporting will start in 2011 based on the data collected throughout 2010.

 

Even without executive orders or EPA rulings, more companies are beginning to measure their carbon usage. In the seven short years since the Carbon Disclosure Project’s first request to companies for information, the number of respondents has grown tenfold. As companies from all industries embrace the notion that “you can’t manage what you can’t measure,” software industry veterans and startups alike are moving into help them track their carbon emissions, a market that is “set to grow seven fold over the next two years,” according to Groom Energy Research.

 

However, while measuring and reporting on emissions is an important first step, it does nothing to actually help mitigate risk to the environment. In order to create a wholly sustainable enterprise, forward thinking companies must do far more than simply implement a carbon management software system. Armed with new emissions data, they must work to reduce their emissions when possible, and purchase offsets when they can’t. But given the uncertainty around a bill coming out of Washington and the recent instability of the carbon markets, companies hoping to buy their way through pending legislation might be out of luck. Forward thinking companies can differentiate themselves by their ability to make measurable reductions in GHG’s through building and energy efficiency, supply chain optimization, green IT, supplier management, and operational efficiency.

 

They can avoid the temptation of one-off, stand-alone software systems, and instead seek enterprise-wide business process and software solutions. And with the U.S. government’s efforts in 2010, there’s sure to be a case study or two from which we can all learn.

 

Daniel Gerding

Consultant, Deloitte Consulting LLP

 

01/25/2010

Water: We can’t take it for granted any longer

Do you know what happens when you turn on the tap at your kitchen sink? Are you aware of the miles of pipes and infrastructure that treat and deliver each drop of water you use and then conveniently take it away once you’re done with it? Most Americans are completely unfamiliar with where their water comes from, what it takes to treat it to useable purity levels (for both domestic and industrial use), and just how scarce fresh water may soon become in certain parts of the globe. I think that’s going to change over the next decade.

Just to make the point, only 3% of the earth’s water is available as fresh water. While parts of the US and in other areas of the globe are facing record-breaking drought conditions, our water supply infrastructure is crumbling and requires major capital investment just to keep up with maintenance. Unprecedented levels of water scarcity plus more domestic and industrial demand for water equates to a potentially unsustainable level of global water consumption.

So what does this mean to businesses? It’s time to start thinking of water and uninterrupted access to it as a strategic issue.

Changing Economics
We don’t pay for water directly – we pay for the infrastructure to deliver it. What if that changed? What if, like purchasing mineral mining rights, businesses had to pay for access to water? What if that equated to having to pay even two cents more per gallon of water? Right now, the average cost of water is $0.002 per gallon. Any increase in this number would turn the economics of beverage manufacturing upside down, as for many other industries. (Did you know it takes about 920 gallons of water across the full lifecycle to make a pair of jeans?) As useable water becomes scarcer due to pollution and increased demand, it is entirely realistic to think that the economics of water and how we use it will change dramatically.

What we’ll see in the future
Going forward, we’ll see increased scrutiny of the use of water in the production and services across virtually all industries, but most significantly in energy, and consumer and industrial products. This will be not only from an operational efficiency standpoint but also for the sake of regulatory compliance or avoidance, and a means to avoid treatment costs. We’ll also see a longer-term perspective and emphasis put on water availability when companies select where to operate, and increased demand for public disclosure of water consumption1. All of these require companies to have an intimate understanding of their direct and indirect water footprint, consider what sustainable levels of water consumption would be at a local level, assess any business continuity risks they may face if water were no longer available or were more expensive to obtain or treat, understand any growth constraints water scarcity may create, and place he concept of water supply into long term strategic planning efforts.

Designing a water strategy
Right now, there is an opportunity to reap benefits - both tangible and intangible - through early identification of water related risks and opportunities. This goes beyond being smart about facility location and strategic sourcing. A comprehensive water strategy reflects not only where water is going to be coming from, but also how to ensure that it remains unpolluted, it is withdrawn at a sustainable rate, and that the interests and concerns of regulators, employees, the financial markets, and local communities are addressed.

For example, to address water quality challenges and engage local stakeholders, a company may invest in local watershed conservation initiatives to help ensure a safe, clean, and reliable supply of water for both the company and the community. This creates an opportunity to engage local stakeholders and establish a partnership for the welfare of the local economy.

Pursuing a water strategy involves comparing the cost of action to the benefits derived from taking action, as well as the cost of inaction. To that end, companies should consider three core goals related to water:

• Move beyond basic regulatory compliance
• Ensure continued access to supplies of useable water at acceptable costs
• Maintain “license to operate” by responding to community needs and concerns

Unlike the impact of carbon dioxide and other greenhouse gases, which is something we can’t readily see or taste, and which some think is very far away from impacting our lifestyles, water is not only critical for our survival but also lubricates the global economy.

Water strategy is becoming a business imperative. Without deliberate planning and careful consideration of what sustainable water use really means, even moderate business consumers of water will be exposed to increased risk and will have lost a significant opportunity for competitive advantage.

And isn’t that what being a “wholly sustainable enterprise” is meant to avoid?

Lee Solomon
Manager
Deloitte Consulting LLP


1
Hoekstra, A.Y., “Water Neutral: Reducing and Offsetting the Impacts of Water Footprints.” UNESCO-IHE Institute for Water Education. March 2008.

01/04/2010

Where do we go from here?

After two weeks of heated debate (and not to mention two years of discussions after Bali), the Copenhagen Conference of the Parties has drawn to a close with the issuance of the “Copenhagen accord.”

This accord “takes note” of the need to hold temperature increases to 2 degrees Celsius (to be reviewed against 1.5 degrees Celsius in 2015) but doesn’t set targets for reduction of greenhouse gasses. 

With no reduction goals or incentives to become more carbon efficient, businesses worldwide will likely still be seeking additional clarity about how they can most effectively move forward in a carbon-constrained world. Moreover, the absence of concrete reduction targets, as well as the omission of any discussion of the future of the clean development mechanism, may slow progress toward a carbon price (the price of carbon in the European ETS has been in decline since last week, presumably at least in part because of this uncertainty).

On the other hand, commentators are questioning the ability of the United Nations to bring negotiations to a head in such an event. The requirement for unanimity does mean that the minorities—in some cases to individuals—can have a lot of control over the outcome of the conference. 

Steps that were taken include:

  • The accord did contain a 2 degrees Celsius target.
  • It engaged the United States and developing countries, including China and India, in the need to do something about their emissions.
  • It brought tropical rain forests into the debate through the REDD+ mechanism.
  • It set a goal of mobilizing a fund to help developing countries with adaptation.
  • Political leaders—presidents, prime ministers—rather than environment ministers and negotiators were personally engaged.

So the process is still ongoing. That said, there seems to be a consensus among attendees on how the conference could have gone more smoothly:

  • Direct the interim negotiating teams to get to solutions—consensus is that the key to success here is to get the political leadership engaged early rather than at the last minute.
  • Restrict the size of teams. Consensus is that 6,000 is not a good negotiating group.
  • Keep the “tourists,” NGOs, and other observers to a minimum in the negotiating area. Consensus is that they just added to the hysteria.

We’ll have to wait to see what emerges in the next few weeks to establish the international path, but, moving forward, we expect more political leadership and less reliance on an annual jamboree. In the short term, however, country-level legislation is what’s likely to drive the climate change agenda and have the biggest impact on business.

Nick Main
Deloitte Touche Tohmatsu (DTT) Global Leader,
Climate Change & Sustainability

12/17/2009

Time is Running Out

It seems everyone at the COP15 negotiations found themselves on the wrong side of something yesterday. Protesters allegedly attempting to storm the Bella Center were met by police with tear gas. Delegates from Friends of the Earth International, locked out of the center due to continued rationing of entrance passes to NGOs, conducted a sit-in for several hours. Attendees who made it inside the Bella Center (including several representatives from Deloitte Touche Tohmatsu member firms) found themselves to some degree locked in; those who attempted to leave were told that if they did so they could not reenter. 

On the negotiations side, the mood was similarly cantankerous. Saudi Arabia and Brazil were locked on opposite sides of a debate over the inclusion of carbon capture and storage (CCS) and forestry, respectively, in the clean development mechanism. Developing nations raised their voices in opposition to the introduction of two new negotiating texts by Conference of Parties (COP) President Rasmussen, questioning whether these texts were based substantially enough on the drafts negotiated by COP delegates up to this point.

The task ahead for the next 48 hours—bringing apparently quite loose drafts that are still the object of much contention into a signable agreement, while maintaining the peace in and around the Bella Center—certainly seems daunting. Tempers are brittle as no one has had much sleep—negotiators once again worked until dawn, and police and protesters have been clashing by night as well as by day.  

The notions of trust and transparency are argued by many to be at stake. For instance, some have argued that the United Nations process cannot be considered transparent while increasing numbers of NGO observers are locked out of the Bella Center. Others, most notably the Chinese delegation, have argued that the introduction of the new texts by the COP president represents a breach of trust in the collaborative process. Days of meetings behind closed doors seem to have taken their toll—whatever the expediency afforded by a narrower, less public process, attendees seem to have lost faith in negotiations they cannot directly witness.

Could consensus yet be possible? Some believe that the presence of heads of state will allow a last-minute compromise to be struck, as has been the case in previous such negotiations. Nonetheless, a contingency plan is already being framed in the public dialogue. Yesterday, Al Gore called for the next COP (in Mexico City) to take place in six months rather than a year, to allow an agreement to be reached quickly … or at least attempted under far warmer conditions.

Nick Main
Deloitte Touche Tohmatsu (DTT) Global Leader,
Climate Change & Sustainability

Late Nights at the Bella Center

It’s crunch time in Copenhagen. Negotiators are working late into the night (no mean feat when the sun sets around 4:00 p.m.) to polish still-unwieldy and bracket-laden drafts into workable shape. They have until Friday morning to ready the drafts for the ministers and heads of state who will consider them. It remains unclear whether agreement must be reached during this frantic round of re-drafting, or whether scope will remain for the ministers themselves to reach an accord.

On one hand, pressure abounds to bring an agreement to fruition. The so-called “high-level segment” of formal negotiations kicked off yesterday with stern admonitions from United Nations (U.N.) Secretary-General Ban Ki-moon, Conference of Parties (COP) President Connie Hedegaard, and His Royal Highness Charles, the Prince of Wales, all of whom emphasized the need to reach agreement in some form here in Denmark.  In recent days, Japan, the European Union, and the United States have all promised billions of dollars in aid to assist greenhouse gas adaptation efforts in developing countries. 

On the other hand, though, the talks are rife with incendiary rhetoric and finger-pointing. German Environment Minister Norbert Roettgen called American positions on mitigation “protectionist” and declared that “the Chinese are not interested in a level playing field,” while Indian Environment Minister Jairam Ramesh opined that the Kyoto Protocol is “in intensive care.” The pressure on delegates and the host country was heightened when Ms Hedegaard stepped down as the president of the conference to make way for Danish Prime Minister Lars Lokke Rasmussen, who will be leading the negotiations as many heads of government arrive in Copenhagen.

Notwithstanding an intriguingly more optimistic mood yesterday (especially regarding issues such as deforestation, where a framework is rumored to be nearly hammered out), the continuing debate around fundamental questions has delegates’ blood pressure high.  Questions as to whether temperature rise should be limited to 1.5 or 2 degrees Celsius, or whether the Kyoto protocol should be superseded by a new agreement seem likely to be on the table until the very last moment.  This second point is problematic as the two streams of drafts—a Kyoto successor and a new agreement—will have to merge before anything can be signed.  When leaders of the larger economies arrive in the next two days, maybe there will be more order and urgency to reach an agreement on a variety of issues.

As negotiations headed late into the evening on Tuesday night, Deloitte Touche Tohmatsu member firm attendees and their clients came together for a dynamic evening of discussion and music hosted by Deloitte Denmark. A young leaders’ panel including Dr. Jeanne Chi Yun Ng, Director of Group Environmental Affairs for CLP Holdings Ltd, and Deloitte Southern Africa’s Duane Newman explored how governments can structure policy and funding decisions to bolster private entrepreneurship efforts. Commentators Mads Ovlison, Chairman of the Board of the U.N. Global Compact, and Greg Bourne, CEO of the World Wide Fund for Nature (WWF) Australia also made provocative remarks on the imperative for speedy and decisive action on sustainability for the business community.  Attendees were then treated to a program of world music commenting on the negotiations, wherein hectic instrumentation and vocals eventually resolved into a rendition of “All You Need Is Love” as sung by a children’s choir.  It was an inspiring representation of how order could be born out of a chaotic muddle—a hopeful message as COP15 draws closer to its end.

Nick Main
Deloitte Touche Tohmatsu (DTT) Global Leader,
Climate Change & Sustainability

12/16/2009

Green IT: All Aboard the Green IT Train!

“All aboard the Green IT Train! 2 minutes until departure,” shouts the conductor.

I glance at my watch and begin thinking to myself. It wasn’t long ago when it seemed I couldn’t go a day without opening a major technology publication and read about how the world was going green and that every company’s information technology infrastructure was along for the ride. That’s when I bought my ticket to board this train, when the future of Green IT looked bright, and the ticket seemed like a great investment. Sadly, those days have passed. Or have they?

There’s no doubt that the recession has made it more difficult for companies to invest in making their IT green, but there are a few alternatives that companies seem to be investing in right now to make the economics a bit more realistic. In a recent Entrepreneur Magazine article titled “Future of Green IT: Greenbacking Green,” it was noted that data centers, server virtualization, hanging the layout of devices, and using more heat-resistant hardware can cut the number of servers needed and reduce cooling costs, allowing companies to reap a financial reward from greening their technology enterprise. Savings can also be found in offices and branches by turning off computers across the enterprise when not in use, consolidating printers, going paperless, and replacing PCs with "dumb" terminals that use 80 percent less power. 

As I grab a sandwich out of my bag and head toward the boarding area, I recall how the Obama administration has been aggressive in setting policy relating to greening energy use throughout the U.S. According to the Energy and Environment section on the White House web site, Obama and company will be investing over $11 billion in renewable energy sources, $5 billion in home weatherization projects and $600 million in green job training programs. This, in turn, should have a noticeable positive impact on the future of Green IT. Obama and company are definitely riding the Green IT Train and are planning to offer heavy incentives to subsidize the hefty fares required to get on board (another reason I bought my ticket). These incentives should lead to increased green investing by companies, including investment in Green IT. But then I wonder, will this green investing continue?

And that’s when it hits me. According to Forrester’s recently released 2009 Global Market Overview report for Green IT Services, the future of Green IT looks very bright indeed. While 2009 shows generally no change from 2008, Forrester expects green IT services to grow by 60% annually to reach $4.8 billion in 2013, from $450 million in 2008. I remember reading that figure and being shocked so I had to read it again: $4.8 billion in 2013, including factoring in the current downturn.

From the looks of things, the Green IT trend is here to stay. For the benefits to the ecology, let’s hope the trend continues to 2013 and beyond… despite how tough it may be to be optimistic right now. 

"All aboard!” the conductor shouts again. “Next stop: 2013. The Green IT Train departs momentarily.”

Brandon Reese
Manager, Deloitte & Touche LLP

10/20/2009

Extreme Green Building Makeover

The upcoming decade will likely see massive investment in US buildings.  This movement is being fueled in part by the federal government’s focus on improving energy efficiency and increasing the development and deployment of renewable energy.  Industry is following suit, leveraging federal funding to create new technologies and build more sustainably, while capturing both cost savings and improving customer relations.  According to the Department of Energy, buildings consume 40% of primary energy in the US1—making buildings the prime target for both government and industry programs.

Allocated funding associated with energy as part of the American Recovery and Reinvestment Act (ARRA) is $36.7 billion2, and these monies will be multiplied by matching private investments.  Consider one program, the Weatherization Assistance Program (WAP), which over the last 32 years spent $5.6 billion weatherizing 6.2 million low income homes.3  With ARRA funding, WAP will receive $5 billion allowing the program to double its prior output in an accelerated timeline.4

So what will this movement do to our homes and offices where we live and work?

The changes will likely be considerable and broad-reaching since both new construction and existing buildings will be impacted. 

Smarter Buildings

Since the 1970s, the energy efficiency of most electrical equipment inside buildings has improved.  Everything from refrigerators to air conditioners has lower energy consumption at increased performance.  Although this trend will likely continue being led by both industry groups and government programs like EPA’s Energy Star, the next biggest opportunity for improvement will be in linking all of these energy consumers to each other and to the electrical generation and distribution system to create smarter buildings.

Smart building technology will allow building systems to react in real time to maintain comfort levels and services at minimum energy levels.  Going beyond programmable thermostats, building systems will be able to shut-down and restart entire circuits preventing losses from vampire loads and preventing appliances from operating during unoccupied periods.  Furthermore, integration with utility systems will also allow price discrimination to drive behavior as customers can choose whether or not to reduce energy use and cost.  Networking costs have significantly decreased, particularly with the advent of low cost wireless solutions, such as Zigbee, which are designed to minimize the installation material and labor costs that historically had adversely impacted retrofitting an existing facility.

Location, Location, Location

A slower change, but perhaps the largest, may be the location of buildings—or more accurately stated, the co-location of buildings.  The concept is old.  Create an integrated community where people can live, work, and play within walking distance.  Link these communities with efficient public transportation.  Location and site selection are primary elements of the US Green Building Council’s LEED certification programs including the recent creation of the LEED Neighborhoods standard.  As municipalities integrate LEED into building code and builders strive to meet customer demand for greener facilities, location will be a major driver in construction decision making.

The impact on our fuel consumption from reducing the amount of mileage driven by the average American could outweigh improvements in fuel efficiency, at a lower cost to consumers.  Every business is likely impacted by these sweeping changes, and not having a strategic plan or assuming business as usual could lead to lost opportunity.

Ali Ahmed
Deloitte Consulting LLP


1  Department of Energy, Energy Information Administration Annual Energy Outlook 2008
2 Department of Energy ARRA funding from DOE website http://www.energy.gov/recovery/index.htm
3 Weatherization Assistance Program Technical Assistance Center briefing book and website, http://www.waptac.org
4 “Weatherization Assistance Program – The American Recovery and Reinvestment Act of 2009” fact sheet from the Department of Energy

10/06/2009

Green Supply Chain Metrics: Sifting through the clutter to measure green business performance

Today’s pressures on businesses to consider environmental impacts of operations and the proliferation of different methods of reporting on that impact to employees, customers, shareholders, governments and the general public can lead to confusion among sustainability practitioners about how to measure the “green” in their operations. Much has been written about the need for standardization of metrics and measurement systems across companies and industries. I don’t disagree with this need, but rather than belabor the point, I’d like to present an approach to understanding green metrics and, more importantly, designing a green supply chain metrics program that I believe is flexible enough to incorporate the needs of different stakeholders and robust enough to measure environmental impact in a way that management can use to drive operational improvements and cost reduction.

One of the biggest flaws with many green metrics programs is the focus on a select group of processes, instead of the business as a whole. Due to the asymmetry of information across the supply chain, most companies lack visibility into the environmental impact of either downstream or upstream participants. These are a couple of the major flaws that I believe could be reduced, and over time eliminated, with the use of a more consistent process for establishing green metrics.

Before embarking on the program, define the scope and goals of green metrics program by considering the who, what, when, where and why of the metrics. The answers to these questions are not typically easy to come by and require the appropriate research, interviews and due diligence to develop a clear picture of your company’s requirements for a green sourcing metrics program. The metrics program needs to be able to address both purely reporting needs, as well as managerial needs, which is the only way that the green metrics program will have potential cost and process improvement prospects.

The next step once the requirements are gathered and assessed is to understand the types of green metrics currently being measured, focusing on the people, processes and technologies involved. It’s important to understand how your current metrics align to the needs and requirements. It’s especially important to identify both gaps and overlaps between the desired state and the current state of green metrics to establish a flexible and comprehensive program.

Next, develop the strategy to achieve the desired green supply chain metrics program.  Again, it’s important here to consider the people, process and technology elements to the green sourcing program. Elements like ERP integration, frequency of reports and potential distribution channels for the reports need to be incorporated into the strategy or the final result will not likely achieve the desired goals.

Finally, it’s time to do the heavy lifting and implement the strategy. Like other large implementation projects, engaging the relevant stakeholders early and ensuring their cooperation throughout the process is essential to success. During this process, be sure to communicate the results of these efforts to supply chain partners so that they can provide any required pieces of information that are part of your company’s green metrics program.

By following the standardized process above, my belief is that over time, green metrics programs will become more similar as they are designed as a strategic response to the marketplace rather than a purely reactive measure designed to meet the requirements of regulatory bodies. Also, through the standardized process above, green metrics can be used to better understand and manage the environmental impact of the company to increase the likelihood that targets set in certain supply chain processes like sourcing or design are actually realized through the company’s operations. 

Jayanth Iyengar
Business Analyst, Deloitte Consulting LLP

09/29/2009

Carbon and sustainability: Business won’t wait for governmental action

On September 16, we hosted Tim Profeta, director of Duke University's Nicholas Institute for Environmental Policy Solutions, to discuss carbon policy and markets with client leaders from the C&IP, Pharmaceutical, Telecommunications and nonprofit sectors.

Throughout the evening, two parallel diagnostics emerged:

  • Business is moving ahead with sustainable measures and initiatives at an increased rate
  • US carbon regulation is currently stalled and will not pass though the House until Health Care Reform has been finalized

From a carbon regulation perspective, the reform’s outcome is closely tied to the ongoing health care debate. Three alternative scenarios were discussed by the audience:

  • Health Care reform quickly moves through Congress, leaving enough political capital to the Obama administration to push through another cornerstone reform such as cap and trade
  • Health Care reform fails, leaving no opportunity for the administration to push through controversial legislation
  • Health Care reform makes slow progress, shelving carbon regulation for a prolonged period

With the next round of international talks on carbon emissions set for later this year in Copenhagen, no US policy will have passed Congress in time and thus negotiations are expected to remain inconclusive. This will likely lead to international frustrations with the US reminiscent of the Kyoto accord negotiations.

In contrast, the business community is not waiting for federal regulations to invest in the topic. One leading retailer recently required that all its suppliers document sustainable practices so as to allow consumers and buyers to evaluate products based on their “green level”. This is leading to changes and the implementation of sustainability performance management across its 13,000 suppliers. The VP of a large food products company highlighted that his organization was expecting other vendors to follow in the footsteps of the world’s largest retailer and require their own set of green metrics.

Attendees highlighted that the business case for sustainability, not only as a cost saver but as an innovation tool is becoming the consensus in the business community and original sceptics are now defining approaches to sustainability. As a local example of such approach, the dinner was held at Taranta, winner of Boston’s Green Business Award for its innovative sustainable practices in the restaurant industry.

Vincent Barrailler
Deloitte Consulting LLP

09/22/2009

World Business Council for Sustainable Development: Advancing the agenda at the intersection of commerce and climate change

Some of the leading sustainability thinking in the world is taking place in this modest facility outside Geneva, Switzerland - home to the World Business Council for Sustainable Development (WBCSD). During a recent visit, we had the opportunity to participate in a detailed briefing on the Council’s current and planned activities.

Not surprisingly, it is clear that global business has a significant role to play in addressing sustainability, energy, carbon and climate change issues. The WBCSD represents a global presence in facilitating the dialogue amongst major business and other stakeholders: governments, non-governmental organizations (NGOs), etc.

The briefing covered a wide range of initiatives, including clean water, energy efficiency in buildings, mobility, mining & materials and others. The efforts represent a broad range of topics, and one of the most interesting aspects of the work is the wide range of companies- large and small- who are active in supporting the Council on its activities.

A membership organization, the WBCSD relies on active participation and support. One of the most interesting aspects of the WBCSD is the collaboration on many of the topics. Among the benefits are engaging in the dialogue, sharing experiences and leading practices, and being a safe forum for advancement of the thinking on these important topics.

If you haven’t seen the good work going on there, check it out: www.wbcsd.org

Chris Park
Principal, Deloitte Consulting LLP

08/27/2009

Defining Impact…And Changing How We Think About Investing - Part II

In 2007 the Global Impact Investment Network (GIIN) was formed, and one of their goals was to identify and address the challenges that were hindering growth in impact investing. An early attempt was made to reach agreement on what a set of common metrics that all organizations in the sector should be measuring. The result of this was a handful of indicators which, although a good starting point, more effectively served to illustrate the challenge ahead. Different areas of focus, operating models, geographies, and lack of available resources for measurement and evaluation all emerged as potential barriers to developing this common framework.

Recognizing the need for collaboration, the Rockefeller Foundation, Acumen Fund, and B Lab initiated the Impact Reporting and Investment Standards (IRIS) effort. The goal is to create a common framework for defining, tracking, and reporting the performance of impact capital. This newly-conceived IRIS initiative will build on these sector-specific efforts to create a common language that will allow comparison and communication across the breadth of organizations, which should form the basis for enabling infrastructure and lead to transparency and credibility. The IRIS effort is an ambitious undertaking - nothing quite like it has been attempted. To be truly effective, IRIS will require acceptance and adoption from a broad group of stakeholders, eventually including governmental organizations, global investors, and traditional lenders. To address this, the IRIS team designed a process that would focus on stakeholder engagement, starting with a core group of leaders in thought and practice in measurement in impact investing. The team then expanded their outreach to include additional groups of stakeholders, culminating in the launch of a Wiki site to collect feedback, a set of webinars, presentations and consultations at the Metrics from the Ground Up conference, hosted by the Grassroots Business Fund (GBF) and Aspen Network of Development Entrepreneurs (ANDE).

Engaging hundreds of individuals representing over 50 organizations should help ensure that the framework would be applicable across sectors, a balance between the desire for metrics from investors, and the resources available to provide this data at small investee organizations. With the feedback of these stakeholders incorporated, Version 1.0 of the IRIS Taxonomy is now completed and published to the IRIS website (www.iris-standards.org). Over the next few weeks, a small group of investors will begin pilot adoption of Version 1.0, modifying their current systems for measurement and working with investees to collect data sample data that will be aggregated to populate the database.

While the public release of this framework and its adoption marks an important step in the development of this taxonomy and infrastructure to collect and communicate data and develop benchmarks and ratings, IRIS and the tools that it supports are by no means complete. The taxonomy will evolve, grow, and improve over time. Subsequent versions are expected to expand to include a more comprehensive set of indicators and metrics applicable to traditional corporations, which are under a constant barrage from investors and stakeholders to report on and improve non-financial performance. The emergence of standardized measurement, reports and ratings systems should increase the credibility and transparency across all sectors. This should, in turn, attract capital from socially responsible investors and even traditional investors looking for growth markets with a positive impact. It will no longer be satisfactory for a corporation to meet investors’ expectations for financial returns. They’ll need to demonstrate positive social and environmental returns as well to be in the mix. It seems that impact investing is at a turning point and with a little push, it may change how the world thinks about investing.

Rob Whittier
Manager, Deloitte Consulting LLP

08/10/2009

“Green” and the Public Trust

Investors, customers and top talent are raising expectations for companies’ responsibilities to society and the environment. In response to this heightened scrutiny, organizations must strategically manage their reputations for corporate social responsibility (CSR) to protect the corporate brand.

Increased regulations and attention to environmental issues have driven many companies to undertake sustainability initiatives, including greening operations, marketing of green products and encouraging sustainable behaviors among employees. I’ve seen companies that have successfully engaged in enterprise sustainability efforts realize significant benefits, such as:

  • Increased recognition as an employer of choice, particularly for Gen Y talent
  • Innovative opportunities to reduce costs throughout the organization and realize long-term benefits
  • Improved employee engagement and productivity through increased morale and dedication to the organization
  • Ability to make a positive impact on the environment while enhancing the organization’s internal and external brand

While I believe the potential benefits of sustainability efforts are clear and considerable, risk exists in their implementation and communication. Overpromising or overselling green practices, or “greenwashing,” can be damaging to corporate reputation and difficult to undo. Increasingly green-savvy stakeholders are keenly aware of the legitimacy of green claims. Blogs, indexes and guides inform and educate consumers about greenwashing.

The opposite of greenwashing is “greenmuting,” or the under-communication of sustainability activities. Greenmuting is a lost opportunity to build reputation and gain employee and public goodwill.

Poorly assessed communications can result in diminished public and employee trust. Organizations choosing to adopt green practices should manage against the risks of greenwashing and greenmuting while realizing the value and goodwill that can be created through sustainability efforts.

Katya Levitan-Reiner
Deloitte Consulting LLP

08/03/2009

Defining Impact…And Changing How We Think About Investing

Around the globe, there has emerged a new force seeking to effect positive social and environmental change through investments in entrepreneurs and organizations of all sizes, from small vendors in developing nations to clean tech startups in Silicon Valley. Most familiar are microfinance lenders, who typically operate in developing nations and provide local entrepreneurs with the capital to start of grow small businesses, and through this increase the prosperity and economic health of their local communities. But this same impact can be exacted through a variety of models at much larger scale.

Need an example?

Visionspring is an organization started in India, which enables small companies to sell eyeglasses from carts or kiosks. To date, Visionspring has provided employment for over 800 entrepreneurs who have, in turn, sold close to  240,000 pairs of eyeglasses in their local communities; creating jobs, income and a sense of purpose for the entrepreneurs and addressing a clear social need. Building on this success, Visionspring has announced lofty goals: Facilitating 689,000 pairs of reading glasses sold during the five year period ending 2012, bringing material social and economic benefit to end customers, their families, and Channel Partners in developing countries, delivering a greater than 30X Social Return on Investment (SROI) in the form of extended working lives and increased productivity for customers of reading glasses, while creating and enhancing livelihoods for an estimated 5,200 local entrepreneurs.

A to Z Textile Mills, which started as a small company manufacturing mosquito bed nets in Africa, has grown to a capacity of 10 million nets per year. The obvious impact is helping to alleviate malaria in areas where A to Z distributes their product, but the impact of their operations, through the creation of over 3,200 jobs in their own operations, providing for over 20,000 individuals in their families and empowering local communities, may be far greater. This sort of mission has existed for some time, but the success of leading organizations in this space in parallel with the rise of corporate social responsibility and consumer awareness may have resulted in this new paradigm for investing for both financial return and social impact. A to Z’s impressive capacity is primarily due to new 50/50 joint venture with Tokyo based Sumitomo Chemicals, a multi-national company with over $30B in assets.

So what’s the challenge?

In the last few years, a proliferation of investment dollars has been allocated to funds and enterprises seeking to generate social and/or environmental impact, as well as a financial return. This impact-investing sector has grown to over $50B in total assets and new investment in the space grew by an average of over 35% over the past 5 years until the middle of 2008. In addition, close to 150 organizations are providing approximately $4B in capital and services to small and growing businesses in developing countries. And areas like clean tech and socially responsible investing have seen double-digit growth year over year, despite challenging economic conditions. Within the next 10 years, impact investing has the potential to grow to about 1% of total managed assets, which would result in about $500B of capital channeled toward social and environmental impact.

Taken together, these statistics suggest that there will be continued growth in this relatively new capital market.  The progress of this growth may be limited, however, by a lack of transparency and credibility in how funds define, track, and report on the social and environmental performance of their capital. Even in distinct sub-sectors, like agribusiness which commonly relies on the agricultural “co-op” as a way to benefit farmers though economies of scale and shared resources, many investors and intermediaries are tracking disparate metrics and using very different definitions for common ones, like acres organically farmed.  Imagine the financial markets if each publicly traded company reported different metrics, one chose to focus on cash flows and another on revenue, and investors and ratings agencies were left to interpret this to assess performance. We believe what’s missing in impact investing is a common language that will allow effective and comparable measurement and communication of financial, social, and environmental performance. This is an essential stepping stone that can help drive increased transparency, improved credibility, and the development of enabling infrastructure, which is required for new entrants to engage in and grow the marketplace.

Is there a solution?

Rob Whittier
Manager, Deloitte Consulting LLP

05/26/2009

Celebrating Earth Day

How do you succeed in greening an organization? A company policy statement or memos explaining the whys and hows of sustainability are not enough. At Deloitte, sustainability and greening have started to become a movement. What have we done to achieve that? In my view, capturing our employees’ imagination was key for success. For example, we think of peppy ways to make “green” fun for everyone, such as the idea of “registering a green footprint,” that is, registering our employees’ energy-saving habits, starting from switching lights off when they leave the room, to printing documents double-sided, to using recycle bins.

The latest Deloitte event to foster a green culture was the Earth Day Event, hosted by practice offices throughout the United States. This year’s focus of our office was local, rather than global. It centered around home, garden, nature, and healthy eating, rather than climate change or pollution. Planning and organizing the event was a lot of fun for the Earth Day planning team, a group of ten dedicated employees led by a Greening Champion. The event was fairly inexpensive to implement, which could make it a worthwhile endeavor for many other companies, as well.

The Earth Day Event in our office was organized much like a trade show, with action stations in a large meeting room.

For example, there was a stand with produce from local vendors, names and addresses of local health food stores and healthy food snacks as give aways. Our information technology group presented new teleconferencing equipment, a great time- and cost-saving tool, and multi-purpose, energy-efficient office equipment, which will replace our traditional copy machines, printers, scanners, and fax machines. A slide show displayed the savings achieved by the past greening efforts of our office:  how much less paper we use by printing double-sided, how many personal digital assistants (PDAs) we recycled over the past year, how many disposable cups we are saving per month. Our creative employees made a video about proper recycling in the office - what paper goes in which bins, where do you dispose of soda cans and cell phones, etc.

To make it more interesting, we also had several outside organizations and consultants participate in the event and explain how their products and services are helping the environment:

  • A home improvement store showcased energy-saving products, such as low-flow shower heads and energy saving light bulbs, organic cleaning products, and eco-friendly paints. The store manager was present to discuss and demonstrate the products’ features.

  • Greening your home from the ground up: A local builder was available to talk about energy-saving ways to refurbish a home and explain the cost  benefit analysis one should complete when assessing which building materials or window designs to use
  • A volunteer from a local nature center shared information about water preservation, organic lawns and gardens, the benefits of composting, and how to get started
  • An Energy Commission Representative of our community was available to discuss home energy audits and the use of alternative energy

My personal favorite: A recycling station had been set up by an athletic shoe manufacturer, and employees could bring their old sneakers for recycling - a cool idea. Athletic shoes collected through this company's athletic shoe recycling program are processed into materials and used as padding under hardwood basketball floors or in new shoes.

It takes time and effort to change a company’s culture and motivate employees to “think green” and “act green.” With creative events such as the Earth Day Event, a company can start a wave that catches on and serves as sustainability catalyst.

I almost forgot: Sustainability and “greening” sometimes means that one has to be careful… so we refrained from printing colorful posters to promote our Earth Day Event.

Maria Davis
Partner, Deloitte & Touche LLP